Corporations: Mergers, Consolidations, Terminations

Chapter 40Corporations: Mergers, Consolidations, TerminationsCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Merger (Definition):A legal contract combining two or more corporations such that only one of the corporations continues to exist; in essence, one corporation “absorbs” another corporation40-2Consolidation (Definition):A legal contract combining two or more corporations, resulting in an entirely new corporation; in consolidation, neither of the original corporations continues to exist40-340-4Procedures for Mergers and ConsolidationsBoards of directors of all involved corporations must approve the planShareholders must approve the plan through a vote at a shareholder meetingThe corporations must submit their plan to the secretary of stateThe state must review the plan, and if it satisfies legal requirements, grant an approval certificate40-5Other Terminology/Rights Regarding Mergers and ConsolidationsRights of shareholders: Shareholders vote only on exceptional matters regarding the corporationShort-form merger (Parent-subsidiary merger): Parent corporation merges with a subsidiary corporation; does not require shareholder approvalAppraisal right: Shareholder’s right to have his/her shares appraised, and to receive monetary compensation for their value 40-6Purchase of Assets/Purchase of StockPurchase of Assets: One corporation can extend its business operations by purchasing the assets of another companyCorporate Assets (Definition): All intangible items (corporate goodwill, company name, company logo, etc.) and tangible items (buildings, property, etc.) owned by the corporation Note: Generally, corporation that purchases assets of another corporation does not acquire its liabilities Purchase of Stock: An acquiring corporation can take control of another corporation by purchasing a substantial amount of its voting stock“Hostile” Takeover (Definition):A takeover to which management of the target corporation objects40-740-8Other Types of TakeoversTender Offer: Aggressor (acquiring corporation) offers target shareholders a price above current market value of their stockExchange Offer: Aggressor offers to exchange target shareholders’ current stock for stock in aggressor’s corporationCash Tender Offer: Aggressor offers target shareholders cash for their stock“Beachhead” Acquisition: Aggressor gradually accumulates target company’s shares40-9Self-Tender Offer (Definition):Response to corporate takeover attempt in which target corporation offers to buy its shareholders’ stock; if shareholders accept offer, target corporation maintains control of businessLeveraged Buyout (Definition):Occurs when group within a corporation (usually management) buys all outstanding corporate stock held by the public; group gains control over corporate operations by “going private” (i.e., becoming a privately-held corporation)40-1040-11“Legal Death” of Corporation Occurs in two phases:Dissolution: Legal termination of corporationLiquidation: Process by which trustee converts corporation’s assets into cash, and distributes them among corporation’s creditors and shareholders40-12Voluntary Versus Involuntary DissolutionVoluntary Dissolution: Occurs when directors or shareholders initiate the dissolution processInvoluntary Dissolution: State government forces the corporation to close40-13Reasons For Involuntary (State Government- Initiated) Dissolution of CorporationCorporation failed to pay taxes within 60 days of due dateCorporation failed to submit its annual report to secretary of state with 60 days of due dateCorporation did not have a registered agent or office in the state for 60 days or moreCorporation failed to notify secretary of state within 60 days that its registered agent/registered office had changedCorporation’s duration (as specified in its articles of incorporation) has expired40-14Reasons for Court-Ordered Involuntary Dissolution of CorporationCorporation obtained its articles of incorporation fraudulentlyCorporate directors have abused their power (“ultra vires” acts)Corporation is insolvent40-15Exhibit 40-3: Life Stages of a CorporationIncorporation—Company becomes incorporated when articles of incorporation signedCorporation Conducts Business—Directors and officers oversee business, as shareholders ensure company’s stock has valueDissolution—Corporation legally terminated, either voluntarily or involuntarilyLiquidation—Directors convert corporate assets into cash and distribute them among corporation’s creditors and shareholders