Deck 36: Fundamental Changes

Question 1

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

Answer 1

True

Question 2

If Corporation J and Corporation K combine all of their assets and create a consolidated corporation; Corporation J
and Corporation K will cease to exist.

Answer 2

True

Question 3

Shareholder approval of a fundamental change in a corporation would normally need to be unanimous.

Answer 3

False

Question 4

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

Question 5

If Able Corporation purchases all of the stock of Beta Corporation rather than all of its assets, there is now a change in Beta Corporation's legal status.

Question 6

If Able Corporation buys all the assets of Beta Corporation in a merger, Able Corporation also assumes Beta
Corporation's liabilities.

Question 7

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

Question 8

Shareholders have a vested property right resulting from the provisions in the articles of incorporation and therefore must give approval for any amendments to the articles.

Question 9

The state, a shareholder, or a creditor may bring a proceeding seeking judicial dissolution.

Question 10

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

Question 11

A corporation must notify the shareholders of the existence of dissenters' rights before taking the vote on the corporate action.

Question 12

Under the Investor Protection and Securities Reform Act of 2010, new corporate governance rules are imposed on publicly and privately held companies.

Question 13

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

Question 14

The 1999 amendments to the RMBCA eliminate the appraisal remedy for almost all charter amendments.

Question 15

Kuhn Corporation transfers one third of its assets to True Color Co., a wholly owned subsidiary. Under the Revised
Act, this transfer is considered to be a sale in the regular course of business.

Question 16

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

Question 17

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

Question 18

A dissenting shareholder can stop a merger or consolidation.

Question 19

If Ajax Corporation buys substantially all the assets of Beta Corporation, a new corporation will result.

Question 20

When purchasers are willing to pay a premium for a block of shares that conveys control, almost all courts today
require the controlling shareholders to turn over this control premium to the corporation's treasury.

Question 21

The remedy of appraisal is allowed to a dissenting shareholder if:

A) the stock price goes down.
B) the shareholder does not vote by proxy.
C) the stock is split.
D) None of these.

Question 22

In many states, dissolution that is nonjudicial may be brought about when:

A) all the shareholders agree to dissolve, even without action by the board.
B) the board of directors agrees to dissolve.
C) the creditors petition the court.
D) the business of the corporation becomes obsolete.

Question 23

Management buyouts commonly make extensive use of borrowed funds.

Question 24

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 the new corporation.
D) discharged by the issuance of new stock in A-Z Corporation.

Question 25

The Action Corporation and the Braker Corporation combine to form the Cable Corporation. This is a merger.

Question 26

Under the CFPA of 2010, publicly held companies must, on their proxy solicitations, disclose and provide shareholders with a binding vote to approve any type of compensation based on or relating to mergers, consolidations, or the proposed sale of all of the assets of the company.

Question 27

Once a corporation becomes publicly held, it cannot return to being private.

Question 28

Statutory provisions do not protect creditors upon the dissolution of a corporation.

Question 29

The 2002 amendments to the Revised Act provide for procedures permitting:

A) a corporation to change its state of incorporation.
B) a domestic business corporation to become a domestic or foreign partnership or LLC.
C) Both of these.
D) Neither of these.

Question 30

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 31

A corporation may acquire all of the assets, including goodwill, of another corporation and combine them with its own through:

A) a purchase of a controlling stock interest in such a corporation.
B) a merger or consolidation with such a corporation.
C) a purchase or lease of such assets.
D) All of these.

Question 32

A shareholder of N Corporation dissents to the corporation's merger with J 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 market value of their shares.
D) accounting book value of their shares.

Question 33

The Revised Act permits the board of directors to make minor corporate name changes without shareholder action.

Question 34

The management of Corporation A forms Corporation B in which management owns some stock and institutional investors own the rest. Corporation B issues bonds to institutional investors to raise cash, with which it purchases the assets or stock of Corporation A. The assets of Corporation A are used as security for the bonds. 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 35

The RMBCA (without the 1999 amendments) grants dissenters' rights to all but which of the following?

A) Dissenting shareholders to any plan of compulsory share exchange in which their corporation is the one to be acquired
B) Dissenting shareholders to any amendment to the articles of incorporation that materially and adversely affects the dissenters' rights regarding their shares
C) Dissenting shareholders of each corporate party to a merger, other than a short-form merger, where only the dissenting shareholders of the subsidiary have dissenters' rights
D) Dissenters' rights exist under the RMBCA in all of these situations.

Question 36

The attorney general of the state of incorporation may bring a court action to dissolve a corporation if the corporation obtained its charter by fraud or if the corporation continues to exceed or abuse the authority that was conferred on it.

Question 37

The Action Corporation and the Braker Corporation combine into the Action Corporation. This is a consolidation.

Question 38

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

Question 39

If Yeron Corporation buys all of the assets of Aeron Corporation:

A) Yeron becomes a parent corporation.
B) Aeron is merged into Yeron.
C) Aeron's board is dissolved and replaced by Yeron's.
D) None of these.

Question 40

The Revised Act, as amended in 2002, provides for domestication procedures which permit a foreign business corporation to become a domestic partnership or LLC.

Question 41

A court may dissolve a corporation in a proceeding by a shareholder if it has established that:

A) the directors are deadlocked in the management of the corporate affairs.
B) the acts of the directors or those in control of the corporation are illegal, oppressive, or fraudulent.
C) the shareholders are deadlocked and have failed to elect directors for at least two consecutive annual meetings.
D) All of these.

Question 42

Which of the following is NOT a basis for involuntary dissolution?

A) By the Secretary of State, if it is established that the corporation failed to pay its franchise tax
B) By a shareholder, if the directors are deadlocked and the shareholders cannot break the deadlock
C) By the shareholders, if they dissent to a merger and are asserting their appraisal rights
D) None of these

Question 43

Fundamental changes to a corporation:

A) fall within the authority of the board of directors.
B) include the sale of substantially all of the corporation's assets in the regular course of business.
C) need to be approved by shareholders, by a majority of the shares present at a meeting at which a quorum is present, under the 1999 amendments to the Revised Act.
D) require unanimous shareholder approval.

Question 44

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. Eighteen months after Swenson's purchase, one of Larson's customers sued Swenson for injuries caused by a welder purchased from Larson, one year 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 for this debt in some states under strict tort liability.
D) could not be liable if Larson & Son still existed as a corporate entity.

Question 45

Appraisal rights:

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

Question 46

Which of the following statements about corporate dissolution is incorrect?

A) A creditor cannot force a corporation into dissolution.
B) A corporation will be dissolved if all shareholders vote to do so.
C) A Secretary of State may start an administrative proceeding to dissolve a corporation for failure to pay taxes.
D) A shareholder may petition a court to dissolve a "deadlocked" corporation.

Question 47

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

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

Question 48

A compulsory share exchange:

A) is a transaction by which the corporation becomes the owner of all the outstanding shares of one or more classes of another corporation by an exchange that is compulsory on all owners of the acquired shares.
B) may be carried out by a corporation acquiring shares in another corporation with its or any other corporation's shares or other securities, but not for cash or other property.
C) affects the separate existence of the corporate parties to the transaction.
D) All of these.

Question 49

If Sean, a shareholder, dissents to a corporate merger, his appraisal remedies will be:

A) fair value of his shares as of the day the corporation agrees to purchase the shares.
B) fair value of the shares as of the time immediately before the action to which he objects is taken.
C) average purchase price for the shares during the preceding 30 days.
D) None of these.

Question 50

The RMBCA provides what period of time within which an otherwise barred claim may be enforced for a claimant who did not receive notice of dissolution and liquidation?

A) Six months
B) One year
C) Three years
D) Five years

Question 51

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 state law).
D) requires the assent of the board of directors and shareholders of each corporation.

Question 52

A short-form merger:

A) is not a merger at all but a form of consolidation.
B) may be undertaken only with the subsidiary's directors' approval.
C) allows no appraisal rights for the parent's minority shareholders.
D) requires shareholder approval.

Question 53

Which of the following is a prerequisite for requesting appraisal rights?

A) Make a verbal demand
B) Meet the statutory time limit
C) Get an independent appraisal of the stock's value
D) None of these.

Question 54

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

A) purchase or lease of the other corporations' assets.
B) purchase of a controlling stock interest in other corporations.
C) merger or consolidation with other corporations.
D) All of these.

Question 55

The Revised Act grants dissenters' rights to:

A) a shareholder when any amendment to the articles of incorporation materially and adversely affects that dissenter's rights regarding his shares.
B) dissenting shareholders of a corporation leasing substantially all of its assets in the usual course of business.
C) dissenting shareholders of each corporate party to a short-form merger.
D) All of these.

Question 56

One method of taking a publicly held corporation private, by forcing minority shareholders to accept cash or property for their shares, is a(n):

A) appraisal remedy.
B) cash-out combination.
C) management buyout.
D) tender offer.

Question 57

A corporation that buys the assets of another corporation does not assume the other's liability unless the:

A) purchaser, expressly or impliedly, agrees to assume the seller's liabilities.
B) transaction amounts to a consolidation or merger of the two corporations.
C) sale is for the fraudulent purpose of avoiding the liabilities of the seller.
D) All of these.

Question 58

Which of the following is true of liquidation of a corporation?

A) Liquidated assets are used first to pay contract rights of shareholders.
B) Common stock has a priority over stock with a liquidation preference.
C) Voluntary liquidation is carried out by the corporate officers.
D) A court-appointed receiver may conduct involuntary liquidation.

Question 59

The Revised Act permits the board of directors to adopt certain amendments without shareholder action. These amendments would include:

A) extending the duration of the 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 60

If a company owns 90 percent or more of the outstanding shares of each class of a subsidiary company'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 61

If Beta Corporation buys all the existing common shares of Ajax Corporation, which has no preferred shares, in exchange for a new class of Ajax Corporation preferred shares, the transaction is a(n):

A) merger.
B) acquisition.
C) compulsory share exchange.
D) consolidation.

Question 62

Avins Corporation wishes to acquire all of the shares of Solomon Corporation. Approval would be required of:

A) Avins' board of directors.
B) Solomon's board of directors.
C) Avins' shareholders.
D) Solomon's shareholders.

Question 63

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 64

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

A) Parker's and Jones's boards.
B) Parker's shareholders.
C) Jones's shareholders.
D) All of these.

Question 65

Nonjudicial dissolution may be brought about by:
a. expiration of the time period for which the corporation was formed.
b. an administrative proceeding because the corporation did not notify the Secretary of State within 60 days that its registered agent resigned.
c. voluntary action taken by all the shareholders of all the outstanding shares of stock.
d. All of these.

Question 66

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) All of these.

Question 67

If a shareholder dissents to a proposed business combination, he is entitled to receive the fair value of his shares. In order to do so, the shareholder must do which of the following?

A) Attack the validity of the corporate action that gives rise to his right to obtain payment or to have the action rescinded
B) Obtain an appraisal of the value of the shares
C) Oppose the proposed corporate action verbally at a special meeting of the stockholders
D) Make a written demand upon the corporation within the set time period

Question 68

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

Question 69

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 70

The Revised Model Business Corporation 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 Oskcamp Brown Corporation 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 71

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