MBE Rules · Business Associations
Fundamental Corporate Changes
Cal. Corp. Code § 1201
The rule
Mergers, share exchanges, and sales of substantially all assets require board approval plus a majority of outstanding shares of each class; short-form mergers of 90%-owned subsidiaries need no minority vote but trigger appraisal.
In plain English
Fundamental corporate changes, such as mergers and sales of significant assets, must be approved by the board of directors and a majority of shareholders for each class of stock. However, if a parent company merges with a 90%-owned subsidiary, this 'short-form merger' does not require a vote from minority shareholders, but those shareholders are entitled to an appraisal of their shares.
Worked example
Company A wants to merge with its 90%-owned subsidiary, Company B. Since Company A owns 90% of Company B, it can proceed with a short-form merger without needing a vote from Company B's minority shareholders. However, those minority shareholders can still seek an appraisal of their shares post-merger.
Memory hook
Mergers need board and majority approval, but 90% ownership skips the vote!
The trap
Exams often present scenarios where students must distinguish between types of mergers and the voting requirements, leading to confusion about when a vote is necessary.
How examiners test it
Questions typically involve a fact pattern where a merger or asset sale is proposed, testing students on the approval process and the implications for minority shareholders.
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