|
There are various structures to use when selling a company. Most privately held companies are sold through a sale of its assets or a triangular merger, where the purchaser forms a subsidiary that then merges into the target company. State law and a company’s constituent documents (i.e., articles of incorporation and bylaws) control the requirements for a merger and for the sale of substantially all of a company’s assets. In this post, I outline a comparison of the voting requirements under Delaware law and Colorado law for a merger. Delaware Under Delaware corporate law, a merger requires approval of a majority of the outstanding stock entitled to vote, unless there are additional approvals required under the company’s Certificate of Incorporation (e.g. super-majority approval or approval from each series of stock). Further, the acquiring company may require other approval, like a super-majority approval, to limit the number of stockholders that may exercise dissenter’s rights. Colorado Under Colorado corporate law, a merger requires the approval of a majority of the outstanding shares of each class of the corporation, unless (i) the board of directors requires a greater vote (ii) additional approvals are required under the company’s Articles of Incorporation or Bylaws adopted by the shareholders (e.g. super-majority approval) or (iii) the acquiring company requires other approval, like a super-majority approval, to limit the number of stockholders that may exercise dissenter’s rights. In practice, this usually means that a majority of the preferred shareholders must approve of the merger and a majority of the common shareholders must approve the merger. One of the biggest differences between Colorado law and Delaware law is that a majority of each class of shares must approve a merger under Colorado law whereas a majority of the total outstanding shares must approve a merger under Delaware law. To illustrate, assume that a Colorado company has 50 common shares and 50 preferred shares for a total of 100 shares outstanding. If all 50 of the preferred shares and 20 of the common shares are voted in favor of the merger, the merger still fails because a majority of the common shares did not vote to approve the merger. Under Delaware law, this same example reaches a different result. The merger would be approved under Delaware law because a majority of the outstanding shares voted to approve the merger (i.e. 70 out of 100). Bottom Line. This difference is typically why many funds investing large amounts of money in a company prefer it to be a Delaware corporation. These investment funds want to protect their ability to control whether a merger occurs and do not want common shareholders to have the ability to block a merger. (Source: http://biztaxbuzz.com/shareholder-approval-necessary-for-a-merger/) For more articles about Finance, Business and Law, please visit www.biztaxbuzz.com
Related Articles -
Business Law, Governance,
| 
