MBE Rules · Business Associations
Sale of Assets
Cal. Corp. Code § 1001
The rule
A sale of substantially all assets outside the ordinary course requires shareholder approval; buyers generally take free of seller liabilities except under de facto merger, mere continuation, or fraudulent-transfer doctrines.
In plain English
When a company wants to sell most of its assets and it's not part of its regular business activities, it needs to get approval from its shareholders. Typically, the buyer won't inherit the seller's liabilities, unless the sale resembles a merger, the business continues under a new name, or if the sale is deemed fraudulent.
Worked example
Company A decides to sell 90% of its assets to Company B. Since this sale is outside the ordinary course of business, Company A must seek approval from its shareholders. If Company B purchases the assets without inheriting Company A's debts, they can proceed unless the sale is found to be fraudulent. In this case, the sale is valid as long as it follows the proper procedures.
Memory hook
Big asset sales need a shareholder thumbs-up!
The trap
Exams may present scenarios where students overlook the need for shareholder approval or misinterpret the exceptions to liability transfer. Watch for subtle hints about the nature of the sale.
How examiners test it
Questions often involve a hypothetical sale of assets and ask about the implications for shareholder approval and liability transfer, testing your understanding of the exceptions.
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