Amendment Of Articles Of Incorporation

A corporation may amend its articles of incorporation in any respect if the amendment would be a legal provision in original articles filed on the date of amendment. 

The Model Act requires the vote of a majority of the shares to effect a change; states often require a two-thirds vote.

The board of directors must adopt a resolution setting forth the proposed amendment and direct that it be submitted to a vote at a meeting of the shareholders.

Each shareholder of record is to be given either the proposed amendment or a summary thereof.

Articles of amendment, setting forth the amendment and its adoption, must be submitted to the Secretary of State.  The amendment becomes effective when the Secretary of State issues a certificate of amendment.

A stockholder who is adversely affected by an amendment of the articles and who objects to the action is entitled to an appraisal and payment for his stock. Unless the articles provide otherwise, a stockholder's rights are deemed adversely affected only when the amendment:

• alters or abolishes any preferential right of his stock;
• creates, alters or abolishes a redemption right;
• alters or abolishes any preemptive right;
• excludes or limits his right as a stockholder to vote on a matter, except as such rights may be limited by voting rights given to new shares then being authorized of an existing or new class.

Mergers And Consolidations

In a merger, one corporation is absorbed into another corporation, which survives.

In a consolidation, two corporations combine to form a new corporation and both old corporations cease to exist.

For a merger, the board of directors of each corporation must adopt a plan of merger.

When two or more domestic corporations desire to consolidate, the board of directors of each corporation must adopt resolutions setting forth the names of the corporations desiring to consolidate, the name of the new corporation to be formed, the terms and conditions, the manner and basis of converting shares, and the articles of incorporation for the new corporation.

For both mergers and consolidations, the plan must be submitted to a shareholder vote at either a special or annual meeting with written notice to all shareholders, whether or not entitled to vote at such a meeting.

Generally, the approval of two-thirds of the shares entitled to vote is required.  Class voting is required if so required by the articles. Generally, if a corporations has two or more classes of shares issued, the plan of merger or consolidation must be approved by two-thirds vote of the outstanding shares of each share class.

If the plan is approved, the articles of merger or consolidation must be delivered to the Secretary of State, and a certificate of merger or consolidation will be issued.

The surviving or new corporation succeeds to the liabilities and duties of the former corporations, and is responsible for any debts, liens, or suits against its predecessor.

Sale Of Substantially All Assets

A corporation may authorize, at a meeting duly called for that purpose, the sale, lease or exchange of all or substantially all its property and assets including good will.

Notice of the time, place, and purpose of the meeting must be given to all shareholders, whether or not entitled to vote.  Some states require that approval must be by a two-thirds vote of each class entitled to vote thereon.

Unless the articles provide otherwise, the authorization or consent of the shareholders is not required for a mortgage or pledge of, or granting a security interest in, property or assets of the corporation.

Shareholders dissenting from a sale, lease or exchange of all or substantially all property and assets are entitled to appraisal and purchase rights, and must follow the applicable procedures.

Dissolution

Dissolution is the extinguishing of corporate existence. It requires affirmative action by the corporation itself or by the courts, and does not occur because of bankruptcy or inactivity. 

Although dissolved, a corporation may continue to exist for a limited time for limited purposes.

A corporation may be voluntarily dissolved by the written consent of all of its shareholders by executing and filing a statement to that effect with the Secretary of State.

Dissolution may take place by the corporation's filing articles of dissolution with the Secretary of State pursuant to a vote of two-thirds of each class of stock outstanding and entitled to vote thereon and with the approval of the board of directors, or pursuant to provisions in the articles of incorporation.

If a corporation has failed to maintain a registered agent, or failed to file the reports required by the state, or if the State Secretary is satisfied that a corporation has become inactive and that its dissolution would be in the public interest, the State Attorney General may, after notice and an opportunity to be heard, dissolve the corporation.

After dissolution or the expiration of the duration stated in the articles, the corporation's existence continues to allow the corporation to prosecute and defend suits, and to enable it gradually to settle and close its affairs.

Dissenting Shareholders' Appraisal Rights

Shareholders may dissent from:

• an amendment of the articles which materially and adversely affects their rights;
• a sale of all assets; or
• a merger or consolidation. 

Dissenting shareholders have the right to require the corporation to appraise their shares and buy them at fair market value.

Shareholders must follow a specific procedure to exercise their appraisal rights. The notice of the shareholders' meeting must contain a statement of the rights of existing shareholders, and must state the prerequisites for appraisal rights:

• the must file written objection to the proposed action, stating his intent to demand payment for his shares if the action is taken; and
• he must not vote his shares in favor of the proposed action. 

Failure of the stockholder to comply with these requirements results in loss of any appraisal rights.

If the shareholder believes the amount remitted by the corporation for his shares is less than the fair value, he may send the corporation his own estimate of value and make a demand for the deficiency. The corporation may petition a court for a determination of value.