Consolidation

ü A and B combine such that both cease to exist and a new corporation C emerges which has all the rights and obligations previously held by A and B.

ü The articles of consolidation for C take the place of the original articles of A and B.

A+B=C

Merger and Consolidation Procedures

PBoard of Directors of each corporation involved must approve the merger plan.

P Next shareholders of each corporation must approve.

P Then, articles filed with Secretary of State who issues a certificate of merger to the surviving corporation or a certificate of consolidation to the newly consolidated corporation.

P When allowed by state statute, a shareholder has the right to dissent and be “bought out” of his/her shares (shareholder’s appraisal right).

P In cases of: merger, consolidation, sale of most of corporation’s assets not in the ordinary course of business, adverse amendments to the articles of incorporation.

P Certain procedures must be followed.

Short-Form Mergers

ü For “Parent-Subsidiary” Merger.

ü No approval of shareholders needed.

ü Parent must own at least 90% of each class of stock of the subsidiary corporation.

ü Board of parent corporation approves.

ü New articles filed.

ü Copy of merger sent to each shareholder of subsidiary corporation.

Appraisal Rights

ü Dissenting shareholder gives written notice of dissent prior to vote on proposed transaction. The notice shows what dissenters stock will cost corporation if action takes place.

ü If approved, shareholder must make a demand for payment of shares at fair market value (calculated on day prior to the date on which the vote was taken -- or court will determine).

ü Corporation must:

ü Make written offer to purchase a dissenting shareholder’s stock, accompanied by current balance sheet and income statement for the corporation.

ü States differ as to whether dissenting shareholder loses his status as a shareholder during appraisal process.

Purchase of Assets

ü The acquiring corporation extends its ownership and control over the physical assets of another company.

ü Acquiring corporation shareholders do not need to approve:

Unless acquiring corporation is paying for assets with its own stock and there is not enough stock authorized or

An acquiring corporation sells on a national exchange, is paying with its own stock, and newly issued stock = 20% or more than the outstanding shares.