18.6: Mergers, Consolidations, and Dissolutions
- Page ID
- 49152
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)Once incorporated, corporations may last forever. However, they also may be merged or consolidated into other business entities or dissolved.
Often businesses will buy the assets of another business. When this happens, the seller remains in existence and retains its liabilities. The buyer does not become legally responsible for the seller’s actions through a mere purchase of assets.
Mergers and consolidations, however, involve the termination of the seller.
Merger
A merger occurs when one corporation absorbs another. The acquiring corporation continues to exist but the target corporation ceases to exist. The acquiring corporation acquires all the assets and liabilities of the target corporation.
Corporate mergers must conform to state laws and usually must be approved by the majority of shareholders of both corporations. Many states require approval by two-thirds of the shareholders. If approved, articles of merger must be filed in the state(s) where the corporations exist.
Consolidation
Consolidation occurs when two or more corporations are dissolved and a new corporation is created. The new corporation owns all the assets and liabilities of the former corporations.
Like mergers, consolidations must be approved by the majority or two-thirds of shareholders of all corporations involved. If approved, articles of consolidation must be filed in the state(s) where the corporations existed.
Mergers and consolidations are often scrutinized under antitrust laws to ensure that the resulting corporation is not a monopoly in the relevant market. Antitrust laws are discussed in Chapter 19.
Voluntary Dissolution
A corporation that has obtained its charter but has not begun its business may be dissolved voluntarily by its incorporators. They simply need to file articles of dissolution in the state of incorporation.
If a corporation has been in business, voluntary dissolution is possible when either (1) all shareholders give written consent or (2) the board of directors vote for dissolution and two-thirds of the shareholders approve.
To dissolve a corporation voluntarily, the corporation must file a statement of intent to dissolve. At that point, the corporation must cease all business operations except those necessary to wind up its business affairs. The corporation must give notice to all known creditors of its dissolution. If the corporation fails to give notice, then the directors become personally responsible for any debt and legal liability. The corporation is required to pay off all debts before distributing any remaining assets to shareholders.
Until the state issues the articles of dissolution, the statement of intent may be revoked if shareholders change their mind.
Involuntary Dissolution
States have the power to create corporations through granting corporate charters. Similarly, states have the right to revoke corporate charters. Actions brought by the state to cancel a corporate charter are called quo warranto proceedings.
Corporate charters may be canceled when a corporation:
- Did not file its annual report;
- Failed to pay its taxes and licensing fees;
- Obtained its charter through fraud;
- Abused or misused its authority;
- Failed to appoint or maintain a registered agent; or
- Ceased to do business for a certain period of time.
Shareholders may also request dissolution when:
- The shareholders are deadlocked and cannot elect a board of directors;
- When there is illegal, fraudulent or oppressive conduct by the directors or officers;
- When majority shareholders breach their fiduciary duty to the minority shareholders;
- Corporate assets are being wasted or looted; or
- The corporation is unable to carry out its purpose.
Finally, dissolution may occur as a result of bankruptcy or when the corporation is unable to cover its debts to creditors.