dissolution

Question 1

Dissolution remedies for corporations

Answer 1

A. No fiduciary duties among shareholders in states like NY/TEX
1. They have judicial remedy–dissolution of the corporation

Question 2

B. Grounds for involuntary dissolution

Answer 2

1. Pervasive fraud
2. Mismanagement or abuse of authority
3. Persistent unfairness toward any shareholder
4. Property being misapplied or wasted by its directors/officers.
   a. In corporations with 35 or less shareholders
   i. If liquidation is reasonably necessary to protect the complaining shareholders

Question 3

C. Minority shareholders aren’t entitled to

Answer 3

to substitute their BJ

Question 4

1. Majority doesn’t have to

Answer 4

to buy out minority shareholders

Question 5

D. Under what circumstances can a corporation be compelled to buy out a disgruntled shareholder

Answer 5

1. Provision in the articles of incorporation
2. Statutory right of appraisal upon “significant change in corporate structure”
3. Equitable remedy based on breach of fiduciary duty (wilkes)-mass

Question 6

A. Acquisition

Answer 6

1. Assumption of control over a firm by a new owner, by any means especially used when existing firm will continue to exist.
   a. (Berkshire/Vandy)

Question 7

B. Merger

Answer 7

1. Two corps or other LLE’s combining so that only one of them is left

Question 8

C. Consolidation

Answer 8

1. Two corporations or other LLE’s combining so that neither survives and an entirely new entity is formed.

Question 9

D. For mergers/consolidations directors of each must

Answer 9

vote to merge

1. Unless merger is between parent/wholly owned subsidiary

Question 10

2. (consol)Resolution must specify all the details

Answer 10

a. How shares of parent corps will get changed

b. What shareholders will get if they cash out

Question 11

3. Agreement must be approved by (consol)

Answer 11

majority of shareholders of both companies.

Question 12

E. Shareholder who voted against merger is entitled to

Answer 12

demand they be paid in cash for “Fair value of their shares”

Question 13

1. Procedure: for nonvoting shareholder

Answer 13

a. Co. notifies shareholder of appraisal rights- if available
b. Shareholder makes written demand
c. Corp or shareholder files proceeding in court seeking appraisal
d. Courts hold a hearing and takes evidence
e. Court determines value of shares
f. Court orders payment to shareholders.
i. Payment comes from surviving corporation

Question 14

F. Stock acquisition 1

Answer 14

hunter wants to acquire the target

Question 15

F. Stock acquisition 2

Answer 15

1. Target continues to exist- just has new owner
2. All previous shareholders are gone, hunter is sole shareholder
   a. Nothing inside the target changes
   b. Not a taxable event for the target
   c. Tax basis of prop stays the same
   d. Target keeps the liabilities
   i. Hunter is derivatively liable via ownership
   e. Target shareholders owe capital gains tax

Question 16

G. Asset Acquisition

Answer 16

1. Target continues in existence with same owners
2. Hunter does not need to acquire liabilities- target remains on hook
3. Target shareholders- not a taxable event
4. Target must pay CG tax if CV of the assets exceed their tax basis
5. Target shareholder will have to pay tax if money is distributed to them

Question 17

1. Cash acquisition

Answer 17

a. Target (or owners) get cash
b. Need cash for transaction
c. Does not dilute current ownership of Hunter
d. Target (or owners) have cash to pay taxes
e. Hunter may have to take on debt for acquisition

Question 18

2. Stock acquisition

Answer 18

a. Target (or owners) Get stock in Hunter
b. Don’t need cash for transaction
c. Dilutes ownership of Hunter
d. Target/owners owe tax but no cash
e. No need to borrow to finance
f. May not require board approval

Question 19

negotiated transaction

Answer 19

a. Reach agreement w/board on acquisition
i. Board if usually on your side
b. Requires shareholder vote of approval
c. Acquire ownership of entire corporation
d. Can be negotiated in private & exclusive
e. Can pay with anything

Question 20

2. Tender offers

Answer 20

a. Go straight to shareholders
i. Board is usually hostile towards you
b. Not a corporate action-so no vote
c. Acquire ownership of only shares tendered
d. Public offer can trigger other bidders
e. Usually requires cash

Question 21

J. Rights of appraisal

Answer 21

1. Appraisal is exclusive remedy unless
   a. Fraud
   b. Violation of a duty running directly to him