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In general, a Colorado corporation may sell all of its assets on the terms and conditions and for the consideration determined by the Board of Directors, provided that the Board proposes and the shareholders approve the transaction. There are several steps that a corporation must follow to complete the transaction: (a) Required Board Action Definitive Agreement. Initially, the company must negotiate and come to terms on a definitive agreement regarding the proposed sale. As part of these negotiations, the company must determine whether the transaction will qualify as a tax-free reorganization. Board Approval. When a definitive agreement is reached, the Board is required to consider and vote upon the transaction and issue board resolutions documenting this decision. Recommendation. If the Board approves the transaction, it must make a recommendation to the shareholders, unless the Board determines that, because of a conflict of interest or other special circumstances, it should make no recommendation, in which case the Board must communicate the basis for its determination to the shareholders with the submission of the transaction. Notice of Meeting/Proxy Statement. In addition to the Board recommendation, the company must give notice to each shareholder of the meeting at which the shareholders will vote upon the transaction. This notice must state that the purpose, or one of the purposes, of the meeting is to consider a sale of all of the property of the corporation and must contain, or be accompanied by, a description of the transaction. This notice and description typically takes the form of a proxy statement. Time for Notice. Generally, the company’s bylaws provide the advanced notice requirements for meetings. Dissenter’s Rights. A sale of all of a company’s assets creates dissenters’ rights under Colorado law (C.R.S. § 7-113-102(1)(c)). Thus, the notice of the meeting must include additional material regarding the shareholders’ right to dissent. This must be given to all shareholders regardless of whether they are entitled to vote on the transaction or not. (b) Required Shareholder Action Vote Required. Unless the board requires a greater vote, the transaction must be approved by each voting group entitled to vote separately on the transaction by a majority of all votes entitled to be cast on the transaction by the voting group. (c) Dissenter’s Rights Shareholder’s Exercise. Shareholders may seek to enforce their dissenters’ rights by following the statutory procedures and timeframes. (C.R.S. § 7-113-202 and C.R.S. § 7-113-204) Payment for shares. If a shareholder exercises his dissenter’s rights in accordance with the statutes, the shareholder is entitled to obtain payment for his shares, in cash, based on the fair market value of such shares. (d) Closing If the sale is approved by the shareholders, the sale can be consummated as contemplated by the definitive agreement. If the sale is consummated as a tax-free reorganization, a form should be filed with the IRS to evidence the transaction. Bottom Line. Obtaining shareholder approval for a sale transaction requires several technical steps that must be considered by the board and management. The board and management must understand that these steps should be considered early in the process to keep the deal momentum moving. Also, as this post is in summary form, numerous other issues would likely arise in such a transaction. For more articles about Finance, Business and Law, please visit www.biztaxbuzz.com
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