BLS 112 Chapter 41: Chapter 41

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Department
Business Law and Society
Course
BLS 112
Professor
S U N Y Ulster
Semester
Winter

Description
Chapter 41: Mergers and Takeovers I. Merger, Consolidation, & Share Exchange  Merger: legal combination of 2 or more corporations o Afterwards  only 1 corporation exists (Surviving Corporation) ▪ Corporation A absorbs Corporation B • Has all rights/powers of A & B • Automatically acquires B’s property & assets • Becomes liable for all B’s debts & obligation ▪ Articles of Merger: document sets forth terms & conditions of merger o Inherits legal rights & obligation of absorbed corporation  Consolidation: 2 or more corporations combine so each ceases to exist, creates new corporation o Consolidated Corporation: completely new entity created ▪ Corporation A + Corporation B  Corporation C o Inherits all rights and liabilities of both ▪ Corporation C inherits rights/powers of A & B ▪ A & B assets transfer to C without formal transfer ▪ C assumes liability for all debts & obligations of A & B ▪ Articles of Consolidation: take place of A & B’s original corporate articles; regarded as C’s corporate articles o Will issue shares or fair consideration to previous shareholders  Share Exchange: some or all shares of 1 corporation are exchanged for some or all shares of another corporation but both continue to exist o Create holding companies  own part or all of other companies’ stock o Parent Corporation: owns all shares of another corporation o Subsidiary Corporation: wholly owned company  Merger, Consolidation, & Share Exchange Procedures o Requirements: ▪ BOD of each corporation must approve merger or share exchange plan ▪ Plan must specify any terms/conditions of merger ▪ Majority of shareholders of each corporation must vote to approve plan at shareholder’s meeting ▪ Once plan approved by directors & shareholders of both, surviving corporation filed plan with appropriate official (secretary of state) ▪ State formalities satisfied  state issues certificate to corporation  Short-Form Merger: (Parent-Subsidiary Merger) accomplished without approval of shareholders of either corporation o Used ONLY when parent owns at least 90% outstanding shares of subsidiary  Shareholder Approval o BOD makes decisions on ordinary matters o Both BOD & Shareholders make decisions on extraordinary matters ▪ Mergers & other combinations need shareholder approval o BOD may seek shareholder approval even when not legally required  Appraisal Right: dissenting shareholders have right to be paid fair value of shares they held on date of merger or consolidation o Extends to mergers, consolidations, share exchanges, & sale of all assets o “Fair Value” = value on day prior to vote o Dissatisfied shareholder  remedy is appraisal rights ▪ Only recourse available II. Purchase of Assets - Acquiring Corporation does not need shareholder approval for purchase - Selling Corporation needs approval from BOD & shareholders o It is a substantial change in business position - Government Restrictions o Both US Department of Justice & FTC have guidelines - Successor Liability in Purchases of Assets o Acquiring corporation assumes BOTH assets & liabilities of selling corporation: ▪ Purchasing corporation impliedly or expressly assumes seller liabilities ▪ Sale transaction is (in effect) merger or consolidation ▪ Purchaser continues seller’s business & retains same shareholders, directors, & officers ▪
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