Business law for accountants, Summaries of Business Administration

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R. LeRoy Miller,

Business law for accountants

Chapter 37 —Fundamental Changes

TRUE/FALSE

1. Shareholder approval of a fundamental change in a corporation would normally need to be unanimous. ANS: F PTS: 1
2. The 1999 amendments to the RMBCA eliminate the appraisal remedy for almost all charter amendments. ANS: T PTS: 1
3. If Ajax Corporation buys substantially all the assets of Beta Corporation, a new corporation will result. ANS: F PTS: 1
4. 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. ANS: T PTS: 1
5. If Able Corporation buys all the assets of Beta Corporation in a merger, Able Corporation also assumes Beta Corporation's liabilities. ANS: T PTS: 1
6. 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. ANS: T PTS: 1
7. 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. ANS: F PTS: 1
8. Brown Corporation purchased all of the stock of Grey Corporation. The appraisal remedy is not available to a dissenting shareholder of Brown Corporation. ANS: T PTS: 1
9. A compulsory share exchange happens when two companies wish to merge into one. ANS: F PTS: 1
10. 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. ANS: F PTS: 1

ANS: T PTS: 1

22. The Action Corporation and the Braker Corporation combine into the Action Corporation. This is a consolidation. ANS: F PTS: 1
23. The Action Corporation and the Braker Corporation combine to form the Cable Corporation. This is a merger. ANS: F PTS: 1
24. After an amendment to the corporate charter has been approved, it must be filed with the Secretary of State. ANS: T PTS: 1
25. The Revised Act, as amended in 2002, provides for domestication procedures which permit a foreign business corporation to become a domestic partnership or LLC. ANS: F PTS: 1
26. Once a corporation becomes publicly held, it cannot return to being private. ANS: F PTS: 1
27. Management buyouts commonly make extensive use of borrowed funds. ANS: T PTS: 1
28. Shareholders may bring an action for the judicial dissolution of a corporation. ANS: T PTS: 1
29. Statutory provisions do not protect creditors upon the dissolution of a corporation. ANS: F PTS: 1
30. The Revised Act permits the board of directors to make minor corporate name changes without shareholder action. ANS: T PTS: 1 MULTIPLE CHOICE
31. 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. ANS: C PTS: 1

2. The management of Corporation A forms Corporation B. Using the assets of Corporation A as security, bonds are issued and the public shareholders of Corporation A are eliminated. This action by management is best described as a: a. leveraged buyout. b. cash-out combination. c. short-form merger. d. compulsory share exchange. ANS: A PTS: 1
3. 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 the above. ANS: D PTS: 1
4. 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 the above. ANS: D PTS: 1
5. 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. ANS: C PTS: 1
6. The consolidation of AB Corporation and ZX Corporation requires the affirmative majority vote of:

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 the above. ANS: D PTS: 1

11. 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. ANS: D PTS: 1
12. 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 not in the usual course of business. c. dissenting shareholders of each corporate party to a short-form merger. d. All of the above. e. Only (a) and (b). ANS: E PTS: 1
13. 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.

ANS: A PTS: 1

14. 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 the above. ANS: B PTS: 1
15. 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 Revised Act. d. require unanimous shareholder approval. ANS: C PTS: 1
16. 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. ANS: A PTS: 1
17. 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

21. 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. ANS: C PTS: 1
22. Which of the following is a prerequisite for requesting appraisal rights? a. Make a written demand b. Meet the statutory time limit c. Get^ an^ independent^ appraisal^ of^ the^ stock’s value d. Both (a) and (b) e. None of the above ANS: D PTS: 1
23. 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 ANS: C PTS: 1
24. 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. ANS: D PTS: 1
25. 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 the above. ANS: D PTS: 1

26. 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 with other corporations. d. consolidation with other corporations e. All of the above. ANS: E PTS: 1
27. 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. purchaser is a mere continuation of the seller. d. sale^ is^ for^ the^ fraudulent^ purpose^ of^ avoiding the liabilities of the seller. e. All of the above. ANS: E PTS: 1
28. 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^ corporate^ assets^ are^ being^ misapplied^ or wasted.

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. ANS: B PTS: 1

33. 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. ANS: C PTS: 1
34. 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 the above. e. (a) and (b). ANS: D PTS: 1
35. 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. e. Both (b) and (d). ANS: A PTS: 1
36. 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. ANS: D PTS: 1

37. 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 the above. ANS: A PTS: 1
38. 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 ANS: D PTS: 1
39. 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 the above. ANS: D PTS: 1

change in a corporation? Give three examples of what would be considered a fundamental change. b. Bill is a minority shareholder in B & B, Inc. He opposes a fundamental change that is approved and implemented. What rights does he have? ANS: a. A fundamental change alters the basic structure of a corporation. Fundamental changes include charter amendments, the sale or lease of all or substantially all of a corporation's assets other than in the regular course of business, mergers, consolidations, compulsory share exchanges, and dissolution of the corporation. b. If Bill dissents and strictly complies with provisions in the corporate statute, he is entitled to receive the fair value of his shares. In order to perfect his right to payment for his shares, Bill must make a written demand on the corporation within the time period set by the corporation. A dissenting shareholder that complies with all of the statutory requirements is entitled to an appraisal remedy. PTS: 1

3. Discuss the similarity between a management buyout and a cash-out combination. ANS: Management buyouts and cash-out combinations are both methods of taking a publicly held corporation private. Cash-out combinations are used to eliminate minority shareholders by forcing them to accept cash or property for their shares. Management buyouts are transactions whereby existing management increases its ownership of a corporation and eliminates its public shareholders. PTS: 1
4. a. Action Corporation purchases all of the assets of the Bell Corporation for cash. After the purchase, a creditor of the Bell Corporation asserts that by buying the assets of the Bell Corporation, Action has automatically assumed all of Bell's obligations. Is he correct? Explain.

b. Dicton Corporation is merged into the Crag Corporation. One of Dicton's creditors was not paid before the merger occurred. The creditor demands payment from the board of directors of the Crag Corporation. The board says that because the Dicton Corporation no longer exists, they have no obligation to the creditor. Who is right? Explain your answer. ANS: a. No. The acquiring corporation, Action, is simply extending its ownership and control over more assets. b. The Dicton creditor is correct. In a merger, the surviving corporation assumes all liability for the merged corporation's debts. PTS: 1

5. Discuss what happens to a corporation after dissolution and what protection is afforded creditors of the corporation. ANS: Dissolution requires that the corporation devote itself to winding up its affairs and liquidating its assets. After dissolution, the corporation must cease carrying on its business except as is necessary to wind up. When a corporation is dissolved, its assets are liquidated and used first to pay the expenses of liquidation and its creditors according to their respective contract or lien rights. Any remainder is proportionately distributed to shareholders according to their respective contract rights. Statutory provisions governing dissolution and liquidation usually include the following safeguards to the interest of the corporation’s creditors: mailing of notice to known creditors, general publication of notice, and preservation of claims against the corporation. PTS: 1