Chapter 41
Corporate Merger,
Consolidation,
and Termination
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
A1. Federal law establishes the specific procedures for mergers.
A2. The power to consolidate is conferred by statute.
A3. When a merger takes place, the surviving corporation issues shares or pays fair
consideration to the shareholders of the corporation that ceases to exist.
A4. In a consolidation, two or more corporations combine so that each corporation
continues to exist.
A5. In a share exchange, some or all of the shares of one corporation are exchanged for
some or all of the shares of another corporation.
A6. The board of directors of each corporation involved must approve a merger.
A7. How the value of the shares of each merging corporation will be determined is stated
after the plan of merger has been approved.
A8. A short-form merger is the legal combination of two or more corporations online.
A9. Once a dissenting shareholder elects appraisal rights, the shareholder loses his or her
shareholder status.
A10. A corporation that is selling all of its assets must obtain approval only from its board
of directors.
A11. Generally, a corporation that purchases the assets of another corporation is
automatically responsible for the liabilities of the selling corporation.
A12. A corporate takeover is the process of acquiring control over a corporation by the
purchase of a substantial number of the voting shares of its stock.
A13. Federal securities laws strictly control the terms, duration, and circumstances under
which most tender offers are made.
A14. Courts do not apply the business judgment rule to analyze whether the directors
acted reasonably in resisting a takeover attempt.
A15. A takeover cannot be challenged on the ground that it would result in a substantial
increase in the acquiring corporation’s marker power.
A16. Dissolution is the legal death of the artificial “person” of a corporation.
A17. When a corporation is dissolved voluntarily, the corporation must file articles of
dissolution with the state.
A18. If a corporation is dissolved, its asset can be liquidated without further notice to a
party who has a claim against the firm.
A19. The state can bring an action to dissolve a corporation that has failed to pay its annual
taxes.
A20. On dissolution, corporate assets are distributed to shareholders according to their
stock rights and any remaining assets are used to pay creditors.
MULTIPLE CHOICE QUESTIONS
A1. Like other corporations, Biopesticide Corporation can extend its operations through
a. a share exchange.
b. a dissolution.
c. a termination.
d. a winding up.
A2. Ridgeway Sand & Gravel Corporation and Quick-Set Paving Company combine so that
all that remains after the papers have been signed is Ridgeway. This is
a. a consolidation.
b. a merger.
c. a purchase of assets.
d. a share exchange.
Fact Pattern 41–1A (Questions A3–A5 apply)
Cherry Grove Apartments, Inc., merges with Dutch Elm Realty, Inc. Only Dutch Elm remains.
A3. Refer to Fact Pattern 41-1A. Cherry Grove owed money to Eager Beaver Repair Service
and other creditors. After the merger, Dutch Elm must pay
a. all of Cherry Grove’s debts.
b. half of Cherry Grove’s debts.
c. none of Cherry Grove’s debts.
d. only debts that Cherry Grove incurred after a merger was proposed.
A4. Refer to Fact Pattern 41-1A. Cherry Grove held rights in certain real property. After
the merger, Dutch Elm acquires the rights
a. automatically.
b. only after completing certain additional statutory procedures.
c. only Cherry Grove’s former shareholders expressly approve.
d. only if the acquisition is a specified result of the merger.
A5. Refer to Fact Pattern 41-1A. The articles of the merger agreement differ from Dutch
Elm’s articles of incorporation. The articles
a. are deemed amended to include the differences.
b. are replaced by the merger agreement.
c. effectively prevent the merger.
d. prevail.
Fact Patter 41–2A (Questions A6–A8 apply)
Petro Drilling Corporation combines its assets and debts with those of Oil Refining Company
to form New Energy, Inc.
A6. Refer to Fact Pattern 41-2A. The formation of New Energy is
a. a consolidation.
b. a share exchange.
c. a liquidation.
d. a merger.
A7. Refer to Fact Pattern 41-2A. New Energy acquires
a. all of Petro’s and Oil’s assets.
b. half of Petro’s and Oil’s assets.
c. none of Petro’s and Oil’s assets.
d. only assets that Petro and Oil acquired after a combination was proposed.
A8. Refer to Fact Pattern 41-2A. New Energy assumes
a. all of Petro’s and Oil’s assets.
b. half of Petro’s and Oil’s assets.
c. none of Petro’s and Oil’s assets.
d. only debts that Petro and Oil incurred after a combination was proposed.
A9. Penn files a suit against Roadway Sign Company While the suit is pending, Roadway
consolidates with Synchronized Signal Corporation to form Traffic Management, Inc.
Now, liability in the suit, if any, rests with
a. Traffic.
b. Roadway and Synchronized.
c. Penn.
d. no one.
A10. Through a certain transaction, Corporate Properties, Inc., acquires all of the shares of
Downtown Realty Corporation for some of Corporate Properties’s shares. Both
Corporate Properties and Downtown Realty continue to exist. This is
a. a consolidation.
b. a share exchange.
c. a short-form merger.
d. a hold-up.
A11. Precise Device Corporation and Quality Instruments, Inc., decide to merge. This
corporate combination does not require the approval of
a. Precise and Quality’s directors.
b. Precise and Quality’s officers.
c. Precise’s shareholders.
d. Quality’s shareholders.
A12. Vacation Adventures, Inc., and Wild River Tour Company plan to merge. Most likely,
the articles of merger will be filed with
a. the county recording office.
b. the local chamber of commerce.
c. the state’s secretary of state.
d. the national travel agents’ association.
A13. Vision Optical Company and Wide Eyes Open, Inc. decide to combine. Xavier, a Wide
Eyes shareholder, is dissatisfied with the price that he will receive for his stock. In the
absence of fraud or other illegal conduct, Xavier’s exclusive remedy is to
a. exercise an appraisal right.
b. file a suit to delay the process.
c. refuse to agree to the deal, which cannot then proceed.
d. urge other shareholders to insist on a higher price.
A14. Ewa is a shareholder of Farm Fresh Foods, Inc., whose management is considering a
tender offer by Growers Market Corporation. Ewa elects appraisal rights. This affects
a. Farm Fresh’s consideration of the offer.
b. Ewa’s shareholder status.
c. Growers Market’s offer.
d. nothing.
A15. Firelite Corporation wants to purchase all of the assets of Glo Power Products, Inc.
Helen is a Glo Power shareholder. The approval of Helen and other Glo Power
shareholders is necessary
a. in all circumstances.
b. in no circumstances.
c. only if Firelite plans to pay with unauthorized, unissued stock.
d. only if the purchase extends Firelite’s control over more assets.
A16. Stratified Industries, Inc., increases its holdings, making tender offers in many states.
These offers are subject to
a. federal securities laws only.
b. state antitakeover statutes only.
c. neither state statutes nor federal laws.
d. state antitakeover statutes and federal securities laws.
A17. The term for the legal death of the artificial “person” of Skytop Services, Inc., or any
other corporation, is
a. surviving corporation.
b. dissolution.
c. takeover.
d. winding up.
A18. Titan Business Corporation can be compelled to dissolve by
a. its creditors only.
b. itself, through its shareholders and directors, only.
c. itself, through its shareholders and directors, or the state.
d. the state only.
Fact Pattern 41–3A (Questions A19–A20 apply)
Atlantic Corporation’s articles of incorporation prohibit a sale of its assets without a vote of
the board of directors. Atlantic’s officers sell some assets to Pacific Company without notice
to the board. The officers also fail to pay Atlantic’s taxes on time, and some Atlantic funds are
not accounted for.
A19. Refer to Fact Pattern 41-3A. The appropriate remedy is most likely
a. a sale of the rest of Atlantic’s assets to its directors and shareholders.
b. Atlantic’s consolidation or merger with Pacific.
c. Atlantic’s dissolution.
d. payment of damages to Atlantic’s officers.
A20. Refer to Fact Pattern 41-3A. With respect to Atlantic’s shareholders, this conduct is
most likely
a. not oppressive because it is undertaken by Atlantic’s officers.
b. oppressive because Atlantic’s directors may be personally liable.
c. oppressive because Atlantic’s shareholders may be personally liable.
d. oppressive because it departs from the standards of fair dealing.
ESSAY QUESTIONS
A1. Spice Corp. wants to acquire all the assets of Sugar Corp. Spice plans to pay for the
assets by issuing its own corporate stock. Spice’s board of directors has already
approved the merger. In what circumstances would the approval of Spice’s
shareholders be required for this merger? Is the approval of Sugar’s shareholders
necessary? Explain.
A2. Florence and Grady pool their money and talents to form Happy Home Builders, Inc.
They are the firm’s only shareholders, directors, and officers. After five years of
declining home prices, they decide to cease business. Can they simply dissolve their
corporation at will? If so, what are the steps in the process?