Corporations: Ch. 14-Shareholder Voting Rights

Appraisal factors

1) every corp. statute authorizes SH to demand appraisal as to fundamental changes, 2) corp. statutes vary from state to state on what type of txns give voting and appraisal rights, 3) Sh may have voting rights in a txn, but not appraisal rights.

four basic comination techniques

1) statutory merger, 2) triangular merger, 3) sale of assets, 4) tender offer.

opt out power

A SH can dissent from certain txns and demand the corporation pay her the cash "fair value" of her shares, notwithstanding the majority voted to approve the txn.

record date

A date set by the board before notice is sent to the SH; only those Sh whose ownership is refleted on the corporations books as of this date may vote. (those who sell between this date and meeting may vote, but those who buy may not).

supermajority voting

A higher percentage is required to accept a proposal, these are acceptable but generally only used in closely-held corporations.

statutory share exchange

A share exchange is a transaction in which neither corporation ceases to exist. Instead, one corporation acquires some or all of the shares of the other corporation. Acquirer SH no voting unless dilution, no appriasal w/o voting, no appraisal with retained ownership. T SH may vote and seek appraisal subject to market out exception.

"whale-minnow merger"

A type of statutory merger that does not increase the outstanding voting shares of the acquiring co. by more than 20% >> the acquiring SH vote is NOT required here.

Hedge Fund Practices

Activist SH will buy shares just before a corporation's record date and sell immediately afterwards in order to obtain voting rights without any financial risk if their vote harms the company.

squeeze out merger

Also known as "freeze out" mergers; An action taken by a firm's majority shareholders that pressures minority holders to sell their stakes in the company. A variety of maneuvers may be considered freeze-out tactics, such as the termination of minority shareholder employees or the refusal to declare dividends.

Tenet of centralized management

Corporate law tenet which holds that the board of directors, not the body of shareholders, has the authority to manage and direct the business and affairs of the corporation

DEL v. MBCA P SH voting rights

DEL no P voting rights! MBCA allows P SH the vote when P issues more than 20% of its outstanding shares prior to the merger.

majority voting

Each nominee for the board must receive a majority of the votes cast or the seat will remain vacant, to be filled by the board or in another election. (this is the way many public corps are moving based on SH pressure).

Annual SH meetings

If no annual SH meeting has been held in the previous 15 months any holder of voiting stock may require the convening of a meeting to elect the BoD.

Differences b/w statutory and triangular mergers

In triangular mergers S distributes shares to T's SHs; P SH's do not vote b/c P is not a party to the merger; S becomes owner of T's property and assumes T's liabilities.

MBCA market out exceptions

MBCA "market out" exception does not apply to to squeeze out mergers involving a 20% or more SH, or those where an insider group has the power to elect 1/4 or more of the board.

Sh voting rights in statutory mergers (DEL)

Many statutes, including Del., require an absolute majority of each corps. to merge.

quorum requirements

Most statutes require that SH have attenance equal to the majority of shares entitled to vote. This number may be increased or reduced in te bylaws, though some statutes (including Delaware) set floor of 1/3. (protect against minority rule).

reverse triangular merger

Opposite of a triangular merger: S becomes part of T.

Sale of Assets

P can buy the assets of T using as consideration some combination of its own stock, cash and other securities. Requires board agreement and T approval of term sin the sales agreement. (DEL no appraisal rights!!)

Plan of Merger (statutory merger)

Plan requiring SH approval and filing with Sec. of State that includes: which corp. will survive, terms and conditions, property/share conversion, amendments to surviving corp necessery to effectuate the merger.

Written consent

SH may act with with this instead of convening a meeting, under Delware law requires a majority vote, under other laws unanimaty.

veto power

SH's can block fundmental changes, but they cannot initiate them.

director removal

SH's can generally remove directors with or without cause, unless the articles expressly require cause.

election of board

SH's have exclusive power to elect directors, except when a board seat is vacant.

MBCA "market out" exception

SH's who are dissatisfied with the terms of a merger do not need a judicial valuation remedy if there is a public market for their stock: stock was publically traded prior to the merger and they receive cash or marketable stock in the merger.

DEL "market out" exception

SHs from the Acquirer of the target may not seek approval is the shares were traded publically prior to merger and after the merger. Distinguishes b/w those Sh who are required to take cash for their shares and those who may take other consideration (shares, cash, etc.)

written notice requirements

Shareholder's must be informed of the time and location of meetings, and purpose of special meetings, at least 10 days prior to the meeting, but not more than 60 days earlier.

Non-voting shares

Shares that do not include voting rights. (share may also have different classes with different voting rights)

absolute majority

Some states, including Delaware, require approval for fundamental transactions where a majority of the outstanding stock of the corporation entitled to vote therein. SH voting on fundamental txns is mandatory and cannot be waived or based on less than the specified majority.

simply majority

Some statutes require that fundamental actions may be approved when the votes cast in favor of the action exceed those against it.

DEL appraisal rights in statutory merger

T SH's have right to appraisal regardless of right to vote as long as no "market out" exception. Acquirer SH have appraisal rights when they have voting rights and no market out exception.

Special Meetings

The board, any person stipulated in the articles of incorporation, or (except for Deleware) any holder of 10% shares may convene these.

Problems with the "market out" exception

The market may not accurately reflect the fair value of the shares, some SH hold restricted shares, and the market may be too thin to absorb the sale of a large quantity of shares.

shareholder meetings

The only required matter at these events is the election of the board of directors, although the board may seek approval of other matters.

trianguler merger

The principal uses a wholly-owned subsidiary to acquire and hold the target business.

Voting caps

This is a tool often used by closely held corporations to limit the voting power of any SH who owns more than a certain percentage of shares.

proxy revocation

Unless made irrevocable, the voting agent can be revoked at any time by submitting written revocation, signing a later dated agent, or appearing in person.

appraisal proceeding

a court proceeding to determine the fair value of a dissenting SH's shares upon exit. (appraisal substitutes an exit right for a veto right).

demoralized market

a market that is too thin to absorb a large quantity of shares at once.

Problem with statutory merger

a statutory merger may expose the principal to unknown or contingent liabilities associated with the target co.'s business.

MBCA voting rights in statutory mergers

a statutory merger need only be approved by a simple majority of the target co.'s SHs.

corporate combination

action that places the business operations of two or more corporations under the control of one management.

cumulative voting

allows the SH to concentrate their votes for particular candidates, thus increasing the likelihood of minority representation on the board. (optional)

MBCA appraisal rights in statutory merger

appraisal rights are only available to the target co.'s SH's who are entitled to vote and not subject to the "market out" exception.

statutory merger

by operation of law, P and T begin as seperate legal entities and end up as one entity, P. unless the plan of merger specifies otherwise the shareholders of T remain shareholders of P.

staggered board

directors are elected for three year terms, with only one third of the board up for election each year. Making takeover or voting insurgency more difficult.

proxy time limitations

many statutes limit 3rd party voting representation to 11 months unless a longer term is specified.

short-form merger

no Sh vote required for a statutory merger where the acquiring co. owns at least 90% of the targer prior to the merger--the target co. SH's cannot vote, but they have the right of appraisal.

General Corp. law voting rule

one vote = one share.

minority discount

reflects the lower price that minority shares command, compared to controlling shares.

class voting

seperate approval by each class of shares to be fundamentally altered by the merger (not required by DEL unless the plan for merger or articles so dictate).

stock-for-cash merger

the plan of merger in a statutory merger indicates that the target Sh's must accept cash for their shares. This can trigger appraisal rights in DEL, but not under the MBCA.

proxy voting

the signed appointment in writing of an agent to apepar and vote on behalf of the sh. This agent may vote at her own discretion unless directed to vote in a particular way.

plurality voting

the top vote getters for any open directorship are elected. (15 spots, 15 candidates = all elected as long as they received one vote)

fundamental transactions requiring SH approval

transactions that change the corporation's form, scope, or continuity: amendments to articles, significant mergers, the sale of substantially all of a corporation's assets, and corporate dissolution.

Acquirerer SH voting rights in a statutory merger under the MBCA

under the MBCA, the acquireer SH vote is only required in a statutory merger where 20% increase in voting shares occurs or when the number of shares they hold after the merger would change or fundamental rights change.