Deck 36: Fundamental Changes of Corporations

Question 1

The 2002 amendments to the Revised Act provide for domestication and conversion into other entities without a merger.

Answer 1

True

Question 2

A compulsory share exchange requires approval from the board of directors of each corporation, but not shareholders of either corporation.

Answer 2

False

Question 3

The secretary of state may bring an action for involuntary dissolution of a company if the corporation has not paid its annual franchise tax.

Answer 3

True

Question 4

If Marco Corporation purchases all of the stock of Polo Corporation rather than all of its assets, there is no change in Polo Corporation's legal status.

Question 5

Dissolution of a corporation does not terminate its existence, and does not require that it liquidate its assets.

Question 6

A compulsory share exchange happens when two companies wish to merge into one.

Question 7

A "short-form merger" requires shareholder approval of both corporations.

Question 8

The 1999 amendments to the Revised MBCA did not change the voting rule; fundamental changes still need be approved by a majority of the votes entitled to be cast.

Question 9

Brown Corporation purchased all of the stock of Gremlin Corporation. The appraisal remedy is not available to a dissenting shareholder of Brown Corporation.

Question 10

A shareholder who opposes a fundamental change to the corporation may make a written or oral demand within the prescribed time period in order to be entitled to payment for his shares.

Question 11

If a purchaser of all a corporation's assets continues the seller's product line, some courts impose upon the purchaser strict tort liability for defects in products previously manufactured by the seller corporation.

Question 12

The Revised Act takes the position that consolidations are, for all practical purposes, obsolete.

Question 13

A dissolution may be judicially decreed if a proceeding is brought by the state, a shareholder, or a creditor.

Question 14

Tico, Inc. and Kanki, Inc. combine all of their assets and create a consolidated corporation, causing the original corporations, Tico and Kanki, to cease to exist.

Question 15

A sale of substantially all of the assets of a corporation that is in the ordinary course of business of the corporation will not require shareholder approval.

Question 16

A purchaser of all the assets of a company normally does not assume the liabilities of that company.

Question 17

Shareholder approval of a fundamental change requires a unanimous vote.

Question 18

Under the Revised Act, Bentry Corporation's transfer of some of its assets to its wholly owned subsidiary is considered a sale in the regular course of business.

Question 19

A shareholder who dissents to a merger and is entitled to the appraisal remedy generally does not have the right to attack the validity of the corporate action.

Question 20

Shareholders do not have vested property rights resulting from provisions in the articles of incorporation.

Question 21

The management of Absco Corporation forms Basco Corporation. Basco  Corporation issues bonds to institutional investors to raise cash, with which it purchases the assets or stock of Absco  Corporation. The assets of Absco  Corporation are used as security for the bonds issued by Basco  Corporation. This action by management is best described as a:

A) leveraged buyout.
B) cash-out combination.
C) short-form merger.
D) compulsory share exchange.

Question 22

A dissenting shareholder who complies with all applicable requirements is entitled to an appraisal remedy.

Question 23

Management buyouts commonly make extensive use of borrowed funds.

Question 24

The consolidation of AB Corporation and ZX Corporation requires the affirmative majority vote of:

A) the boards of directors and shareholders of both corporations.
B) the boards of directors of both corporations, but not the shareholders.
C) the shareholders of both corporations, but not the boards of directors.
D) the directors and shareholders of one of the corporations, but not both corporations.

Question 25

The attorney general of the state of incorporation may bring a court action to dissolve a corporation if the corporation obtained its charter through fraud.

Question 26

The statutory provisions governing dissolution and liquidation usually prescribe procedures to safeguard the interests of the corporation's creditors. These procedures include:

A) the required mailing of notice to known creditors.
B) a general publication of notice.
C) the preservation of claims against the corporation.
D) All of these.

Question 27

A shareholder of Nico Corporation dissents to the corporation's merger with Jinx Corporation. If the appraisal remedy is granted, the shareholders will be paid the:

A) par value of their shares.
B) stated value of their shares.
C) fair value of their shares.
D) accounting book value of their shares.

Question 28

Incorporation statutes usually provide only for involuntary dissolution of a corporation.

Question 29

Under the 1999 amendments to the Revised Act, charter amendments need be approved by only a plurality of the shares cast at a meeting at which exists a quorum consisting of at least a majority of the votes entitled to be cast on the amendment.

Question 30

After an amendment to the corporate charter has been approved, it must be filed with the secretary of state.

Question 31

The case of Alpert v. 28 Williams St.Corp. involves a compulsory share exchange.

Question 32

Any method of combination of corporations that involves shares, proxy solicitations, or tender offers may be subject to federal securities regulation.

Question 33

Cash-out combinations are used to eliminate minority shareholders by forcing them to accept cash or property for their shares.

Question 34

A court may not dissolve a corporation in a proceeding brought by a shareholder if it is only established that the acts of the directors are merely oppressive and not destructive.

Question 35

AB Corporation consolidates with ZX Corporation to form A-Z Corporation. The debts of AB Corporation are:

A) assumed by the stockholders of AB Corporation.
B) discharged by the process of consolidation.
C) assumed by A-Z Corporation.
D) discharged by the issuance of new stock in A-Z Corporation.

Question 36

Under the Dodd-Frank Act signed into law in 2010, proxy solicitations asking shareholders to approve an acquisition, merger, or consolidation in publicly held companies must provide shareholders with a binding vote to approve any compensation relating to these combinations.

Question 37

A mortgage or pledge of any or all of a corporation's property and assets-whether in the usual or regular course of business or not- requires the approval of the board of directors and the shareholders.

Question 38

The combination of two or more corporations into a new corporation is known as:

A) merger.
B) consolidation.
C) compulsory share exchange.
D) short-form merger.

Question 39

Statutory provisions protect creditors upon the dissolution of a corporation.

Question 40

After dissolution, the corporation must cease carrying on its business except as is necessary to wind up.

Question 41

A(n) __________ is a general invitation to all of the shareholders of a target company to tender their shares for sale at a specified price.

A) compulsory share exchange.
B) tender offer.
C) buyout.
D) sell-off.

Question 42

Which of the following statements about corporate dissolution is INCORRECT?

A) A corporation cannot be forced into dissolution by a creditor.
B) A corporation will be dissolved if all shareholders vote to do so.
C) A secretary of state may commence a proceeding to dissolve a corporation for failure to pay taxes.
D) A shareholder may petition a court to dissolve a "deadlocked" corporation.

Question 43

The court in the Cohen v. Mirage Resorts, Inc. case stated:

A) a claim brought by a dissenting shareholder that questions the validity of a merger as a result of wrongful conduct on the part of majority shareholders or directors is properly a derivative suit.
B) a shareholder who opposes a merger must either accept the terms of the merger and exchange their shares for new shares or dissent from the merger and forfeit their stock.
C) minority shareholders may challenge the merger process if it is procedurally deficient or if fraud affected the shareholder vote on the merger.
D) minority shareholders have no right to sue to enjoin or rescind an invalid merger, but must be satisfied with money damages.

Question 44

Which of the following is untrue about fundamental changes of corporations?

A) Fundamental changes include charter amendments, mergers, consolidations, and dissolution.
B) Fundamental changes of corporations are authorized by state incorporation statutes.
C) Shareholder approval for fundamental changes usually needs to be unanimous.
D) The 1999 revisions to the RMBCA contained substantial revisions to the RMBCA's treatment of fundamental changes.

Question 45

Larson & Son manufactured welders that frequently malfunctioned, setting clothing on fire and causing serious burns. Larson & Son sold all of its assets to Swenson Co., which continued to manufacture the Larson welder product line. Eleven months after Swenson's purchase, one of Larson's customers sued Swenson for injuries caused by a welder purchased from Larson, six months prior to the purchase by Swenson. Under the circumstances, Swenson Co.:

A) cannot be held liable, because it is a corporation.
B) cannot be held liable, because it did not manufacture the welder in question.
C) might be held liable in some states under strict liability.
D) could not be liable if Larson & Son still exists as a corporate entity.

Question 46

To eliminate minority interests, which of the following are sometimes used to take a publicly held corporation private?

A) Conversions.
B) Domestications.
C) Cash-out combinations.
D) Changeovers.

Question 47

The right of dissent results in payment of:

A) a damage award to the shareholder.
B) a price in exchange for his shares.
C) treble damages for violation of the charter.
D) a bonus to dissenting shareholders.

Question 48

A short-form merger:

A) is not a merger at all but a form of consolidation.
B) may be undertaken without director approval.
C) allows no appraisal rights for the parent's minority shareholders.
D) requires shareholder approval.

Question 49

The concept of a combination that makes a publicly held corporation a private one and includes cash-out contributions and management buyouts is a:

A) going private transaction.
B) privitization procedure.
C) merger.
D) changeover conglomeration.

Question 50

If a company owns 90 percent or more of a subsidiary's stock, a merger may be effected with approval of the parent's board of directors alone, without resort to shareholders. This is called a:

A) parent-sub merger.
B) board merger.
C) short-cut merger.
D) short-form merger.

Question 51

Appraisal rights:

A) belong to dissenting shareholders.
B) can be exercised by a target company any time before acquisition.
C) allow a target company to get a fair valuation of their assets before sale.
D) always give all shareholders the fair market value of their shares.

Question 52

Liquidation of a corporation:

A) is carried out by a court-appointed receiver in any liquidation.
B) is carried out by the board of directors, serving as trustees, in a voluntary liquidation.
C) results in paying first stockholders with a liquidation preference, then outside creditors, then expenses of liquidation.
D) is set up to protect stockholders and the board of directors, but not creditors.

Question 53

Dissolution that is judicial may be brought about when:

A) a shareholder brings a proceeding because the directors are deadlocked in management of the corporate affairs and the corporation is suffering irreparable injury.
B) the board of directors creates a resolution approved by shareholders to dissolve.
C) the shareholders of a closely held corporation adopt a unanimous agreement to dissolve.
D) the corporation is without a registered agent for over 60 days.

Question 54

If Elliot, a shareholder who dissents to a corporate action, is entitled to appraisal remedies, they will be the:

A) fair value of his shares as of the day the corporation agrees to purchase the shares.
B) fair value of the shares immediately before the action to which he objects is taken.
C) average purchase price for the shares during the preceding 30 days.
D) par value of the shares as set forth in the articles of incorporation..

Question 55

Generally, the secretary of state may commence an administrative proceeding to dissolve a corporation when the corporation:

A) does not pay franchise taxes or penalties immediately when due.
B) does not deliver its annual report within ten days after it is due.
C) is without a registered agent in the state for more than 60 days.
D) is not making enough profit to pay dividends to its shareholders.

Question 56

The combination of two or more corporations' total assets, title to which is vested in one of them, known as the surviving corporation, is a:

A) dissolution.
B) liquidation.
C) consolidation.
D) merger.

Question 57

The Revised Act grants dissenters' rights:

A) to dissenting shareholders of a corporation leasing substantially all its assets, not in the usual course of business.
B) only to the last capitalized corporation in a merger.
C) when a plan of compulsory share exchange is being acted on, for the acquiring corporation only.
D) All of these are dissenter's rights.

Question 58

A consolidation:

A) has precisely the same result as a merger.
B) is the most typical form of business combination used today.
C) is always illegal (in contrast to mergers, which are legal under some state laws).
D) requires the assent of both corporations' board of directors and shareholders.

Question 59

In order to lease substantially all of a corporation's assets not in the usual course of business:

A) shareholder approval is necessary.
B) shareholder approval is required if so determined by a subjective test under the 1999 amendments to the Revised Act.
C) approval of the board and the majority of the corporation's outstanding shares is required; dissenting shareholders do not usually have an appraisal remedy.
D) shareholder approval is unnecessary, unlike for the sale of assets.

Question 60

The right of dissent would exist in all of the following cases EXCEPT where the corporation:

A) is party to a consolidation.
B) is party to a merger.
C) will be the one acquired in a compulsory share exchange.
D) declines to declare dividends for the third year in a row.

Question 61

a. In general, what is considered a fundamental change in a corporation? Give three examples of a fundamental change.
b. Who proposes such fundamental changes? Who must approve them? Explain.
c. Brian is a minority shareholder in Gryath, Inc. He opposes a fundamental change that is approved and implemented. What rights does he have?

Question 62

The board approves a proposed amendment to deny existing preemptive rights to Class A preferred, and to issue stock in a new Class D preferred that would be accorded liquidation preference after all other classes of preferred stock. Preferred Classes B and C would remain the same. Which of the following would be true?

A) Only Class B and C shareholders vote.
B) A majority of Class A, B, and C shareholders all together would be needed to pass the amendment.
C) Class B and C shareholders would not be entitled to vote at all.
D) Class A and C shareholders would vote together.

Question 63

A court may dissolve a corporation in a proceeding brought by a shareholder when:

A) the corporate assets are being misapplied.
B) the directors are deadlocked and the shareholders are unable to break the deadlock.
C) the shareholders are deadlocked and have failed to elect directors for at least two consecutive annual meetings.
D) All of these .

Question 64

a. When may the attorney general of a state seek judicial action to dissolve a corporation?
b. When may the shareholders of a corporation seek to dissolve it?
c. When may the creditors of a corporation seek to dissolve it?

Question 65

A creditor may petition the court to judicially dissolve a corporation if he has an unsatisfied judgment against the corporation and:

A) the corporation is insolvent.
B) the creditor will become insolvent if not paid.
C) the debt is over $5,000.
D) the debt is more than 120 days overdue.

Question 66

Discuss what happens to a corporation after dissolution and what protection is afforded creditors of the corporation.

Question 67

Jasmine owns a controlling interest in the Hardwick Company. Explain her responsibilities if she wants to privately sell her interest.

Question 68

If Barker Co. buys 51% of the shares of Carter Co.:

A) Carter Co.'s board would have to approve the sale.
B) Barker Co.'s board would have to approve the sale.
C) both boards would have to approve the sale.
D) both sets of shareholders would have to approve the sale.

Question 69

The __________ gives shareholders who elect such a right in the articles of incorporation the power to dissolve the corporation.

A) appraisal remedy
B) U.C.C.
C) Statutory Close Corporation Supplement
D) common law

Question 70

a. Action Corporation purchases all of the assets of the Bell Corporation. After the purchase, a creditor of the Bell Corporation asserts that, by buying the assets of the Bell Corporation, Action has automatically assumed all of Bell's obligations. Is he correct? Explain.
b. Dicton Corporation is merged into the Crag Corporation. One of Dicton's creditors was not paid before the merger occurred. The creditor demands payment from the board of directors of the Crag Corporation. The board says that because the Dicton Corporation no longer exists, Crag has no obligation to the creditor. Who is right? Explain your answer.

Question 71

A corporation may accomplish acquiring all or substantially all assets of another corporation by:

A) purchase or lease of other corporations' assets.
B) purchase of a controlling stock interest in other corporations.
C) merger or consolidation with other corporations.
D) Any of these are ways that corporations may acquire assets of another corporation.

Question 72

The Revised Model Act would permit the directors to avoid a shareholder vote for which of the following amendments to the articles of incorporation?

A) Changing the name from The Oscar Company to McDuddy Corporation.
B) A change from duration of 99 years to perpetual life.
C) Authorizing a new class of stock.
D) Adding to the number of directors.

Question 73

The courts may grant a petition of involuntary dissolution if shareholders:

A) do not approve of fundamental changes of the board.
B) show that the corporation has not kept adequate records or filed annual reports.
C) did not receive their dividends.
D) show that corporate assets are being squandered.

Question 74

A few states and the 1999 amendments to the Revised Act contain provisions authorizing a corporation to merge or convert into another type of business organization, referred to as an eligible entity.  Which of the following is NOT an eligible entity?

A) limited partnership .
B) limited liability company .
C) foreign for-profit corporation.
D) nonprofit corporation .

Question 75

A merger of Parker Corporation with Jones Corporation that results in only Parker Corporation's surviving normally would require approval of:

A) Parker's and Jones' boards.
B) Parker's shareholders.
C) Jones' shareholders.
D) Approval from all of these would be required.

Question 76

The use of cash-out combinations has raised questions concerning both their purpose and their fairness to minority shareholders. In this context, fairness includes:

A) fair dealing.
B) fair price.
C) both fair dealing and fair price.
D) tender.

Question 77

The Revised Act permits the board of directors to adopt certain amendments without shareholder action, unless the articles of incorporation provide otherwise. These amendments would include:

A) extending the duration of a corporation if it was incorporated when limited duration was required by law.
B) changing each issued and unissued authorized share of an outstanding class into a greater number of whole shares if the corporation has only one class of shares.
C) making minor name changes.
D) All of these.

Question 78

Discuss the similarity between a management buyout and a cash-out combination.