Section 30.2
What You’ll Learn How to distinguish among a merger, an asset acquisition, and a stock acquisition (pp. 654-656) How to describe a tender offer (p. 656)
What You’ll Learn How to define a suitor and a target (p. 656) How to distinguish between the voluntary and involuntary dissolution of a corporation (p. 660)
What You’ll Learn How to identify the circumstances under which a limited liability company can dissolve (p. 660)
Why It’s Important Understanding the nature of corporate expansion and dissolution will help you determine your rights as a shareholder.
Legal Terms merger (p. 654) asset acquisition (p. 655) stock acquisition (p. 656) tender offer (p. 656) suitor (p. 656) target (p. 656)
Section Outline Increasing Shareholder Value Types of Corporate Expansion Merger and Consolidation Asset Acquisition Stock Acquisition
Section Outline Government Regulation of Corporate Expansion Federal Regulation State Legislative Regulation Judiciary Scrutiny
Section Outline Dissolution of a Corporation Voluntary Dissolution Involuntary Dissolution Dissolving a Limited Liability Company
Pre-Learning Question Why is it important for corporations to expand?
Increasing Shareholder Value Investors buy shares in a corporation in order to make money through a return on their investment.
Increasing Shareholder Value Investors make money when they receive profits in the form of dividends or when the value of their shares increases. One way to increase the value of a corporation’s shares is to expand the business.
Pre-Learning Question What are some ways a corporation can expand?
Types of Corporate Expansion buying new land building new manufacturing plants opening new sales outlets expanding product lines entering new fields of business
Types of Corporate Expansion Growth and expansion can also occur by joining with another corporation through a merger an asset acquisition a stock acquisition
Merger and Consolidation Merger and consolidation are common methods of business expansion.
Merger and Consolidation In a merger, one corporation continues its existence and absorbs another corporation, which gives up its corporate identity.
Merger and Consolidation In a consolidation, two or more companies join to form a new corporation. The new company is a composite of the old companies.
Asset Acquisition In an asset acquisition, one corporation agrees to purchase the assets or property of a second corporation.
Asset Acquisition One advantage to asset acquisition is that the debts and liabilities of the selling corporation do not transfer to the buying corporation.
Stock Acquisition In a stock acquisition, an individual or a corporation purchases enough shares of stock in a corporation to control it.
Stock Acquisition A stock acquisition often begins with a tender offer to shareholders of the corporation. This is an offer to buy a number of shares at a specified price and is often called a takeover bid.
Stock Acquisition The corporation making the tender offer is referred as the suitor. The corporation to be taken over is called the target.
Pre-Learning Question Why does government regulate corporate expansion?
Government Regulation of Corporate Expansion During the 1960s and 1980s, many takeovers took place that involved bitter struggles between suitors and targets.
Government Regulation of Corporate Expansion These takeovers created concerns that mergers stifled competition controlled markets and pricing discouraged innovation
Government Regulation of Corporate Expansion As a result, Congress, state legislatures, and the courts have become involved in regulating the corporate takeover process.
Federal Regulation A federal statute known as the Williams Act strictly controls takeover bids. It requires a suitor who offers to acquire more than five percent of a target to file a statement with the SEC.
State Legislative Regulation State legislatures have dealt with stock acquisitions by: passing antiliability statutes to protect corporate directors. enacting antitakeover statutes to discourage suitors from targeting companies within their states.
Judicial Scrutiny Sometimes courts must evaluate the decision made by a corporation’s directors and officers, if they successfully resist a takeover bid and are sued by dissatisfied shareholders.
Judicial Scrutiny In these cases, the court may either apply the business judgment rule or the primary motive approach, which is to determine the directors’ and officers’ primary motive for resisting a takeover.
Pre-Learning Question How do corporations come to an end?
Dissolution of a Corporation The end of a corporate entity is often referred to as the dissolution of the corporation and can come about in two ways: voluntarily involuntarily
Voluntary Dissolution Corporations may end voluntarily by a unanimous vote of all of its shareholders a vote by the directors, provided they get the support of two-thirds of the shareholders
Voluntary Dissolution After the decision to dissolve is made, the corporation must notify: the secretary of state’s office with a statement of intent to dissolve creditors by certified mail the public by publication
Voluntary Dissolution Creditors are first to be paid. If necessary, a receiver divides the assets among the creditors. Articles of dissolution must be filed with the secretary of state.
Involuntary Dissolution The secretary of state can ask the state attorney general to bring a quo warranto action against a corporation if the corporation has repeatedly conducted business illegally.
Involuntary Dissolution If such action is taken, the corporation could lose its charter and would no longer be authorized to do business in the state.
Involuntary Dissolution Grounds for bringing quo warranto action include: failure to file annual reports failure to pay franchise taxes failure to maintain a statutory agent for service of process
Involuntary Dissolution A corporation may also be subject to a quo warranto action if it exceeds its authority or is formed fraudulently.
Involuntary Dissolution Shareholders may also bring an action but must have appropriate grounds evidence of illegal actions evidence of fraud
Involuntary Dissolution evidence of waste of corporate assets evidence that a dissolution is needed to protect the shareholders’ rights
Dissolving a Limited Liability Company State law also regulates the dissolution of a limited liability company because an LLC is, like a corporation, a statutory entity.
Dissolving a Limited Liability Company State statutes generally outline the circumstances under which an LLC can be dissolved.
Circumstances of Dissolution An LLC can be dissolved by the unanimous agreement of members the expulsion of a member a member’s bankruptcy and his or her withdrawal
On January 31, 2001, shareholders of the Howard Dennis Corporation voted unanimously to end the corporation. Can this action dissolve the corporation? Why or why not?
ANSWER Yes, because a unanimous vote by the shareholders is required to end a corporation.
On November 30, 2000, the directors of the H. A. L On November 30, 2000, the directors of the H.A.L. Company voted unanimously to end the corporation. Can this action dissolve the corporation? Why or why not?
ANSWER No, because two-thirds of the shareholders must also vote to end the corporation.
Reviewing What You Learned Section 30.2 Assessment Reviewing What You Learned What are the differences among a merger, an asset acquisition, and a stock acquisition?
Reviewing What You Learned Answer Section 30.2 Assessment Reviewing What You Learned Answer In a merger, one corporation continues its existences and absorbs the other corporation. In an asset acquisition, one corporation agrees to purchase the assets or property of a second corporation.
Reviewing What You Learned Answer Section 30.2 Assessment Reviewing What You Learned Answer A stock acquisition occurs when an individual or a corporation purchases enough shares of stock in a corporation to control that corporation.
Reviewing What You Learned What is a tender offer? Section 30.2 Assessment Reviewing What You Learned What is a tender offer?
Reviewing What You Learned Answer Section 30.2 Assessment Reviewing What You Learned Answer The first step in a stock acquisition in which an individual or corporation offers to buy a number of shares of a corporation’s stock at a specified price. It is often called a takeover bid.
Reviewing What You Learned Section 30.2 Assessment Reviewing What You Learned What is the difference between a suitor and a target?
Reviewing What You Learned Answer Section 30.2 Assessment Reviewing What You Learned Answer The corporation making a tender offer is referred to as the suitor and the corporation to be taken over is called the target.
Reviewing What You Learned Section 30.2 Assessment Reviewing What You Learned What is the difference between voluntary and involuntary dissolution of a corporation?
Reviewing What You Learned Answer Section 30.2 Assessment Reviewing What You Learned Answer Voluntary—a unanimous vote of all of its shareholders; directors vote and get the support of two-thirds of the shareholders.
Reviewing What You Learned Answer Section 30.2 Assessment Reviewing What You Learned Answer Involuntary—the secretary of state can ask the state attorney general to bring a quo warranto action against a corporation, if that corporation has repeatedly conducted business illegally.
Reviewing What You Learned Section 30.2 Assessment Reviewing What You Learned What are the circumstances under which a limited liability company can dissolve?
Reviewing What You Learned Answer Section 30.2 Assessment Reviewing What You Learned Answer The members of a limited liability company can initiate its dissolution by unanimous agreement; can be triggered by the expulsion of a member; can be triggered by a member’s bankruptcy or withdrawal.
Critical Thinking Activity Asset Acquisitions Section 30.2 Assessment Critical Thinking Activity Asset Acquisitions What advantages come with an asset acquisition?
Critical Thinking Activity Answer Asset Acquisitions Section 30.2 Assessment Critical Thinking Activity Answer Asset Acquisitions One advantage to asset acquisition is that, in general, the debts and the liabilities of the selling corporation do not transfer to the buying corporation.
Legal Skills in Action Involuntary Dissolution Section 30.2 Assessment Legal Skills in Action Involuntary Dissolution You have just discovered that a corporation in which you hold stock is going to be subject to a quo warranto action.
Legal Skills in Action Involuntary Dissolution Section 30.2 Assessment Legal Skills in Action Involuntary Dissolution Write an entry in your Justice Journal outlining all of the possible reasons why the state may have decided to take this step against this company.
Legal Skills in Action Involuntary Dissolution Section 30.2 Assessment Legal Skills in Action Involuntary Dissolution Also remind yourself of the possible consequences of this action.
Legal Skills in Action Answer Section 30.2 Assessment Legal Skills in Action Answer Involuntary Dissolution Journal entries should include that the state may be filing a quo warranto because the corporation may have failed to file annual reports, pay franchise taxes, or maintain a statutory agent for service of process.
Legal Skills in Action Answer Section 30.2 Assessment Legal Skills in Action Answer Involuntary Dissolution Also, it could have exceeded its authority or was formed fraudulently.
Legal Skills in Action Answer Section 30.2 Assessment Legal Skills in Action Answer Involuntary Dissolution The consequences of a quo warranto may be that the corporation could lose its corporate charter and would no longer be authorized to do business in the state.
End of Section 30.2