BUL ch 31

In a consolidation, one corporation acquires all the assets and liabilities of another corporation, which then ceases to exist.

F

appraisal right

*SH right to be paid fair value for shares* -held on date of merger SH disapproves, but is outvoted

takeover

*acquisition of control over corp through purchase of a stock* deals directly w/ target company's SH in purchasing their shares -> Tender offer

Share exchange

*an exchange of 1 corps shares for those of another* -both companies continue to exist -can be used to create a holding company -parent corp -subsidiary corp

Tender offer

*an offer to buy SH's voting shares* -in takeover attempt

dissolution

*legal death of the artificial person of the corp* -act of state -agreement of SH & BOD -expiration of a time pd -court order

short-form mergers

*merger that can be accomplished w/o SH approval* merger of subsidiary into parent -approved by BOD of parent corp before filed w/ state -copy of merger plan to each SH of subsidiary corp

liquidation

*sale & distribution of assets of a business* assets converted to cash and distributed among creditors & SH

merger

*when 1 corp acquires assets & liabilities of another corp, which then ceases to exist* articles of merger: sets out corps name, capital structure -amends the articles of surviving corp -issues shares & pays SH of disappearing corp

consolidation

*when 2 or more corps join to become a new corp* -both cease to exist new corp acquires all of the assets & liabilities articles of consolidation: new corps corporate articles -issue shares or pay SH of disappearing corp

corp that is sell all its assets

-changing its business position and ability to carry out its corp purpose MUST have approval by both directors & SH -most states -appraisal right

parent corporation

1 corp owns all of the shares of another corp

voluntary dissolution

1. SH unanimous vote 2. proposal of the BOD submitted to SH ->must file articles of dissolution w/ state ->must notify creditors

procedure for a corp combination

1. board of directors of each corp must approve 2. SH of each corp vote approval 3. plan filed w/ sec of state 4. state issues a certificate

Short-form mergers: parents owns at least _____% of all of the stock of the subsidiary

90%

______ states have statutes authorizing mergers, consolidations, SE for *domestic*

ALL

receiver may be appointed when

BOD do not wish to act as trustees or SH or creditors show that the board should not act as trustees

In a merger, two or more corporations join to become a completely new corporation.

F

A shareholder's appraisal right is available in all states under all circumstances.

F ****

acquiring corp that bought all assets of another corp (does/doesnt) need to obtain _______ approval for the purchase

DOESNT SH ->no change in legal entity

A corporation that purchases the assets of another corporation always assumes the selling corporation's liabilities.

F

a corp that purchased the assets of another _____ responsible for the liabilities of the selling corp exceptions:

ISNT exceptions: -purchasing corp assumes liabilities, or court imposes -sale amounts to what is in fact a merger or consolidation -purchaser continues the seller's business & retains same personnel -sale is fraudulently escaping liability

Midwest Movers, Inc., and Northwest Transport Corporation consolidate. When this combination is completed, Midwest and Northwest will cease to exist. Midwest will continue as the sole surviving firm. Northwest will continue as the sole surviving firm. Midwest and Northwest will continue to exist as separate entities.

Midwest and Northwest will cease to exist.

______ states allow combo of domestic & foreign

SOME

During the liquidation of a corporation, corporate assets are converted to cash and distributed to creditors and shareholders.

T

Shareholders who disapprove of a merger or a consolidation may be entitled to be paid the fair value of their shares.

T

Some states provide a simplified procedure for the merger of a subsidiary corporation into its parent corporation.

T

The dissolution of a corporation can be brought about by an agreement of the shareholders and the board of directors.

T

holding company

a company whose business activity is holding shares in another company

Macro Corporation and Micro Company combine, and a new organization, MM, Inc., takes their place. This is a consolidation. a merger. a purchase of assets. a purchase of stock.

a consolidation.

Analytics Corporation acquires substantially all of the assets of Big Data Company by direct purchase. There is no change in either legal entity. This is a consolidation. a purchase of assets. a merger. an appraisal right.

a purchase of assets.

Eaters' Feast Company is a subsidiary of Food Prep, Inc. A merger of Eaters' Feast into Food Prep is a corporate liquidation. a short-form consolidation. a short-form merger. a violation of the relevant state law.

a short-form merger.

appraisal right only when

a state statute specifically provides it

Which of the following is not one of the reasons a state may dissolve a corporation? a. Failure to complete a merger in a timely manner b. Procurement of a corporate charter through fraud c. Failure to pay annual corporate taxes d. Abuse of corporate powers

a. Failure to complete a merger in a timely manner

The officers and directors of Pinto Corporation started the company without realizing how much work it would take. As a result, they were fairly disorganized. They failed to pay corporate taxes on time and failed to file the required annual reports. As a result, the state initiated involuntary dissolution for Pinto. The person responsible for liquidating the assets of the corporation is: a. the president. b. a receiver appointed by the court. c. the registered agent. d. the chair of the board of directors.

b. a receiver appointed by the court.

AbleCo and BravoCo decided to merge. AbleCo absorbed BravoCo and was the surviving corporation. At the time of the merger, BravoCo had several loans from Cobble Bank. AbleCo knew about the loans when the merger was negotiated. During the time of the merger negotiations, BravoCo missed making the last three monthly payments on the loans. In addition to the principal and interest, there were late fees owed to the bank. After the merger, AbleCo assumed the loans and began making the monthly payments. The missed payments and late fees: a. must be paid by AbleCo. b. must be paid by the former officers of BravoCo. c. must be waived by the bank. d. are treated separately. AbleCo must make the missed payments, but the bank must waive the late fees.

a. must be paid by AbleCo.

A tender offer most often occurs when: a. one corporation offers to buy the stock of another corporation by offering a premium to the shareholders of the target corporation. b. the directors of two corporations want the two corporations to become one corporation. c. the state entity responsible for incorporation declares that two corporations are similar enough in purpose and requires them to combine. d. the officers of two corporations want the two corporations to become one corporation.

a. one corporation offers to buy the stock of another corporation by offering a premium to the shareholders of the target corporation.

induce SH to accept offer

acquiring corp generally offers them a price higher than market price

pac-man

aggressive -self tender target corp attempts its own takover of the acq corp

Circle Corporation buys all of the assets of Square Corporation. Circle continues to run Square as a division of Circle, with Square's former leadership in charge of the division and using the same employees and all of the assets purchased. Circle even continues to label its products from that division with the Square logo (which was one of the purchased assets). In its purchase agreement, it states that Circle is not responsible for any of Square's liabilities. Under principles of successor liability: a. Circle is not responsible because they specifically contracted out of liability. b. Circle is responsible because they continued the seller's business essentially intact. c. Circle is responsible because liabilities are tied to assets. d. Circle is not responsible because the transaction was an asset purchase

b. Circle is responsible because they continued the seller's business essentially intact.

When a corporation is dissolved, assets of the corporation are turned to cash and distributed to creditors and shareholders in a process called: a. Tender. b. Liquidation. c. Merger. d. Sale of Assets.

b. Liquidation.

If company A is purchased by company B and company A ceases to exist but all the shareholders of company A become shareholders of company B, this is most likely: a. a stock purchase. b. a purchase of assets. c. a merger. d. a consolidation.

c. a merger.

Eastco purchases Westco in a merger, with Eastco being the surviving corporation. At the time of the merger, Westco had a right of action for patent infringement against Northco. After the merger, this right: a. belongs to Eastco but cannot be exercised, because Eastco suffered no harm. b. belongs to Eastco. c. can be exercised only by the former officers of Westco in their capacity as Westco employees. d. is extinguished.

b. belongs to Eastco.

Nell owns 3,000 shares of Dynamix Corporation. Dynamix decides to merge with Clomator, Inc., which makes plastic packaging for food. Nell is very unhappy about this decision but is not willing to sell her stock because of it. To express her dissatisfaction, Nell can: a. use her preemptive rights. b. exercise her appraisal rights. c. order a dissolution. d. follow the correct procedure and demand a short-form merger.

b. exercise her appraisal rights.

When one company purchases all (or nearly all) the assets of another company, the purchasing company: a. generally will not be responsible for the liabilities of the selling company if the purchasing company if the sale is essentially a merger or consolidation. b. generally will not be responsible for any liability of the selling corporation related to those assets. c. generally will not be responsible for the liabilities of the selling company if the purchasing company bought the assets to help the selling company escape liability. d. generally will not be responsible for the liabilities of the selling company if the purchasing company continues to run the seller's business with the same people.

b. generally will not be responsible for any liability of the selling corporation related to those assets.

The leadership of Drink Corporation and Snack Corporation decide that if the two companies combine, they would have a terrific opportunity to increase profits. It makes more sense for them to combine and come up with a new name and structure than for either of them to just take over the business of the other. So with the approval of the shareholders and the boards, they combine in to a company they call Drack Corporation. The leadership of Drack comes from both of the prior companies. This transaction most likely is: a. an asset purchase. b. a merger. c. a consolidation. d. a share exchange.

c. a consolidation.

Two brothers, Albert and Raymond Martin, each owned 50 percent of the stock in Martin's News Service, Inc. Albert and Raymond had difficulty working together and communicated only through their accountant. For ten years, there were no corporate meetings, no elections to the board of directors, and no observation of other corporate formalities. During that time, Raymond operated the business much as a sole proprietorship, failing to consult Albert on any matter and making all of the decisions himself. The corporation, however, was a viable concern that had grown successfully through the years. Albert filed a lawsuit seeking to have the corporation dissolved. The court most likely: a. refused to dissolve the corporation, because there was no shareholder agreement to dissolve the corporation. b. dissolved the corporation, because Albert, as a 50 percent shareholder-owner of the corporation, was entitled to have the corporation dissolved regardless of the circumstances. c. dissolved the corporation, because the shareholders had been deadlocked for over ten years, during which time none of the corporate formalities had been observed. d. refused to dissolve the corporation, because dissension between the shareholders is not a sufficient basis on which a court can order dissolution.

c. dissolved the corporation, because the shareholders had been deadlocked for over ten years, during which time none of the corporate formalities had been observed.

General Repair, Inc. agreed to repair Portland Racing League race cars for damage incurred during on-track accidents. General Repair deposited $400,000 with Parts, Co., a Colorado firm that manufactured auto parts, so that General Repair could buy parts for damaged cars without delay. Parts agreed to return any unspent deposit at the end of the season. Near the end of the season, the only two owners of Parts retired and sold the company's assets to Etude Motorsports, a Georgia corporation, in exchange for some cash and several shares of Etude stock. Etude continued to run Parts, Co. as a division and offered positions in the division to all of Parts, Co. employees, including directors and officers. At the end of the season, General Repair contracted Etude for a return of any unused funds. With regard to this request, Etude: a. does not need to return the funds because they did not specifically agree to accept that liability in the contract with Parts, Co. b. does not need to return the funds because they are a different company from Parts, Co. c. needs to return the funds because they essentially continued to run Parts, Co. as a business. d. needs to return the funds out of fairness concerns.

c. needs to return the funds because they essentially continued to run Parts, Co. as a business.

Appraisal rights will be available: a. only when federal law provides for them. b. always--there is a common law right to appraisal rights. c. only when a state statute provides for them. d. any time a shareholder has a question about an asset's value.

c. only when a state statute provides for them.

When a target company defends against a takeover attempt by finding what they consider to be a better match and instead merges with a third company, it is called: a. the poison pill defense. b. the Pac-Man. c. the white knight defense. d. the crown jewel defense.

c. the white knight defense.

involuntary dissolution -> liquidation

court will always appoint a receiver to wind up corp affairs & liquidate assets

Diana and Jean started DiJean Corporation. In the official documents, they created a system where all employees and current owners have the option to buy shares of stock at ½ the original issue price if a tender offer ever was made to them by another company attempting to takeover DiJean. This proactive strategy is known as a. a crown jewel. b. a white knight. c. a Pac-Man. d. a poison pill.

d. a poison pill.

Trainor Corporation previously bought 91% of Van Slyke Company. Trainor now wants to purchase the remaining 9%, and absorb Van Slyke in to Trainor with Van Slyke disappearing as a corporation. If Trainor is allowed to do this without shareholder approval, it is called: a. a merger. b. appraisal rights. c. a consolidation. d. a short-form merger.

d. a short-form merger.

Check My Work Palmer Corporation has 10,000 shares of stock that it can issue. Cernohous Corporation has 500 shares of stock. Palmer gives the owners of Cernohous 1 share of Palmer stock in trade for 1 share of Cernohous Corporation. At the end of the transactions, Palmer owns 100% of Cernohous stock and Cernohous's former owners all own one Palmer share for each Cernohous share they had owned. Both Palmer and Cernohous continue to exist as companies. This transaction is: a. a merger. b. a consolidation. c. an asset purchase. d. a stock exchange.

d. a stock exchange.

Bossy Corporation wants to own Wimpy Corp. The Wimpy Corp. leadership is not interested in selling. So Bossy Corporation makes an offer to Wimpy's shareholders to buy their shares of stock at 110% of the market value. This is called: a. the Pac-Man approach to ownership. b. a crown jewel. c. the white knight approach to ownership. d. a tender offer.

d. a tender offer.

If the Out Company and the About Company join to become the Out and About Company, the legal process that has taken place is known as a(n): a. merger. b. appraisal. c. acquisition. d. consolidation.

d. consolidation.

Deskin Corporation has been operating for ten years, making a nice profit, and paying stockholders a fair dividend. However, Deskin has failed to file or pay its annual corporate taxes for the last three years. The state can dissolve the corporation for: a. abandonment of operations before startup. b. failure to commence business operations. c. abuse of corporate powers. d. failure to comply with administrative requirements.

d. failure to comply with administrative requirements.

In order for a corporate combination (merger, consolidation, share exchange) to occur: a. only the shareholders of both corporations must approve it. b. only the board of directors of the surviving corporation must approve it. c. only the boards of directors of both corporations must approve it. d. the boards of directors and the shareholders of both corporations must approve it.

d. the boards of directors and the shareholders of both corporations must approve it.

With regard to the purchase and sale of substantially all of the assets of a corporation: a. the shareholders of both corporations must approve the transaction. b. neither the shareholders of the buying corporation nor the shareholders of the selling corporation must approve the transaction. c. the shareholders of the corporation buying assets must approve the transaction but the shareholders of the corporation selling assets do not need to approve. d. the shareholders of the corporation selling assets must approve the transaction but the shareholders of the corporation buying assets do not need to approve.

d. the shareholders of the corporation selling assets must approve the transaction but the shareholders of the corporation buying assets do not need to approve.

termination of a corp

dissolution -> liquidation

director's fiduciary duties

hostile takeover attempt: directors duties of care & loyalty collide w/ self-interest -> SH (who would have received a premium for their shares from takeover) file a lawsuit ->directors breached their fiduciary duties in defending against the tender offer courts apply business judgment rule -> directors must show reasonable grounds to believe that the tender offer posed a danger -> response must have been rational

crown jewel

management makes the company less attractive by selling the most valuable asset to a 3rd party

voluntary liquidation _________ acts as trustees of corps assets -responsibility

members of board -responsible for winding up the affairs for the benefit of corp creditors & SH -BOD personally liable for any breach of fiduciary trustee duties

appraisal right applies to

mergers consolidations Short-form mergers sales of all of corp assets

Redwood, Inc., is unprofitable. In a suit against Redwood, Inc., a court might order dissolution if the firm does not buy its stock from its shareholders. declare a dividend. make a profit this year. pay its taxes.

pay its taxes.

purchase of stock

purchase of substantial # of voting shares acquiring corp controls the target corp -> takeover

corp may gain control of another corp by

purchasing its assets or substantial # of votingshares

corp may grow by

reinvesting in retained earning in more equipment hiring more employees combining w/ another corp through merger, consolidation, or share exchange

Takeover defenses (target company)

resist a takeover target company can make a self-tender: offer to acq stock from its own SH and retain corp control crown jewel pac-man poison pill white knight

_____ states allow short-form mergers

some

involuntary dissolution

state 1. failure to comply w/ admin req 2. fraud or misrep 3. abuse of corp powers (ultra vires acts) 4. violation of state criminal code 5. failure to commence business ops 6.abandonment of ops before startup sometimes SH petitions a court for dissolution b/c of misconduct or deadlock among BOD or controlling SH

appraisal right may be lost if

statutory procedures are not followed precisely

Good Healthcare, Inc., initiates an attempt to purchase enough shares in Home Health Aides Corporation to control it. This process is a corporate consolidation. merger. liquidation. takeover.

takeover

poison pill

target corp issues to its stockholder's rights to purchase additional shares @ low prices. makes takeover undesirable & expensive for acq corp

white knight

target corp solicits a merger w/ a 3rd party, when then makes a better tender offer to target SH. 3rd party rescues target & is the white knight

subsidiary corp

wholly owned company

Mary and Adam are the directors and majority shareholders of U.S. Imports, Inc., and Overseas Corporation. U.S. Imports owes $5,000 to International Transport, Inc. To avoid the debt, Mary and Adam vote to sell all of U.S. Imports' assets to Overseas. If International sues Overseas on the debt, International will win, because an acquiring firm always assumes a selling corporation's liabilities. win, because the sale was fraudulently executed to avoid liability. lose, because Overseas refused to assume U.S. Imports' debt. lose, because U.S. Imports has ceased to exist.

win, because the sale was fraudulently executed to avoid liability.