ACCT 324 Chapter 40

Chose in Action

the surviving corporation's right to sue for debt and damages on behalf of the absorbed corporation

Purchase of Stock

As with asset purchase, acquiring corporations (aggressors) can buy any or all of another corporation's voting shares. Through such a stock purchase, the purchasing corporation gains control of the selling corporation in a corporate takeover

Merger

Combination of two or more corporations in which only one of the corporations continues to exist; in most states, corporations that merge may transfer their rights, powers, and privileges to the new corporation formed by the merger

Response to termination

Death of a corporation occurs in two phases: dissolution (legal termination of corporation) and liquidation (process by which the board of directors converts the corporation's assets into cash and distributes them among the corporation's creditors and shareholders)

Rights of Shareholders

When shareholders invest, they expect the board of directors to handle business issues and to vote on exceptional matters such as mergers, consolidations, changes in partners, sales or leases of the corporation, and exchange of assets; merger and consolidation procedures require the approval of shareholders

Appraisal right

a dissenting shareholder's right to have his or her shares appraised and to receive monetary compensation from the corporation for their value

Requirements for mergers/consolidations

1. Boards of directors of all involved corporations approve the plan 2. Shareholders of all involved corporations approve the plan by a vote at a shareholder meeting; most states required 2/3 approval of the outstanding shares of voting stock; however, if a merger increases the number of the surviving corporation's shares by no more than 20 percent most states do not require the approval of surviving corporation's stockholders 3. Involved corporations submit the merger or consolidation plan to the secretary of state 4. Secretary of state issues a certificate to grant approval

Secretary of state can compel involuntary dissolution for five reasons (RMBCA 14.20)

1. Corporation failed to pay tax within 60 days of the due dat 2. Corporation failed to submit its annual report to the secretary of state within 60 days of the due date 3. Corporation did not have a registered agent or office in the state for 60 days or more 4. Corporation failed to notify the secretary of state within 60 days that its registered agent or registered office has changed 5. Corporation's duration as specified in its articles of incorporation has expired

Courts can force voluntary dissolution for three reasons (RMBCA 14.30)

1. Corporation obtained its articles of incorporation fraudulently 2. Directors have abused their power 3. Corporation is insolvent

Response to Takeovers

1. Self-tender offer (takeover-resistance strategy; target corporation offers to buy its shareholders' stock) 2. Leveraged buyout (LBO) (takeover-resistance strategy; group within the target corporation buys all the corporate stock held by the public, thereby turning the company into a privately held corporation

Types of Takeovers

1. Tender Offer (aggressor offers target shareholders a price above the current market value of the stock) 2. Exchange Offer (aggressor offers to exchange the target corporation's current stock for stock in the aggressor' corporation) 3. Cash tender offer (aggressor offers to pay cash for the target corporation's stock) 4. Beachhead acquisition (aggressor gradually accumulates a substantial number of the target corporation's shares and initiates a proxy fight) 5. Hostile takeover (the management of the target corporation objects to the takeover)

Dissolution

1. Voluntary (directors or shareholders trigger the dissolution procedures, directors can initiate the proposal and submit it to shareholders or shareholders can begin dissolution procedures but shareholders must unanimously vote for the proposal) 2. Involuntary (state forces the corporation to close; state can initiate dissolution procedures or individual shareholders can petition the state to order dissolution)

Liquidation

Begins once dissolution has occurred; in cases of voluntary dissolution liquidation duties fall on the board of directors who become trustees of the corporate assets; as trustees, board members hold title to the corporation's property and become personally liable for breaches of fiduciary trustee duties; due to these responsibilities, some board members do not want to act as trustees; in other situations shareholders to not want to entrust directors with the distribution of assets, in these cases the objecting party can petition the court to appoint a receiver not affiliated with the corporation to handle liquidation duties; in cases of involuntary dissolution, courts automatically appoint a receiver to handle liquidation duties

Purchase of assets

Corporations can extend operations by purchasing all or a substantial amount of another corporation's assets (includes intangible items such as goodwill, a company name, and a company logo and tangible items such as buildings and other property); when asset purchase occurs, the acquiring corporation assumes ownership and control over tangible and intangible assets of the selling corporation; selling corporations need the approval of its board of directors and shareholders; asset purchases generally does not acquire the selling company's liability except if: 1. The contract governing the purchase expressly or impliedly states that the acquiring corporation takes on the liabilities 2. Corporations may intend that the transactions be a purchase of assets but it falls within the legal framework of a merger or consolidation 3. The corporations execute the sale under fraudulent circumstances

Consolidations

Legally combine two or more corporations to form a new one; neither of the original corporations continues to exist legally; because the new corporation has independent legal status, the articles of incorporation for the original corporations are void and the shareholders create new articles called articles of consolidation

Short-form merger (parent-subsidiary merger)

Parent corporation absorbs a subsidiary corporation; parent corporation must own at least 90 percent of outstanding shares of each class subsidiary's stock, board must submit the plan to subsidiary's shareholders even though they do not have veto power, and the state must approve the merger proposition

Hostile takeovers

Takeovers to which the management of the target corporation objects; the target corporation frequently undergoes layoffs and dramatic changes in company policy