Section 1001 of the California Corporations authorizes a corporation to sell all or substantially all of its assets when the principal terms are approved by the board of directors and the outstanding shares (unless the transaction is in the usual and regular course of business). When the shareholders elect to dissolve the corporation, the board is charged with winding up its affairs and this most likely will result in the sale of assets. If the sale occurs outside of the usual and regular course of business and involves all or substantially all of the corporation’s assets, will shareholder approval be required pursuant to Section 1001?
The answer depends on the type of consideration. If the consideration is cash, Section 2001(g) will in most cases allow the board to sell the assets without compliance with Section 1001. The only exception is when the acquiring party is in control of or under common control with the disposing corporation. In that case, the principal terms of the sale must be approved by at least 90% of the voting power disposing corporation. Cal. Corp. Code § 1001(d) (there’s an exception to the exception, but I’ll leave that for another post). If the consideration is not cash, then Section 1001 would apply (and also Sections 1200 and 1201 (but not Chapter 13)).
A California/Delaware Twofer!
In a couple of weeks, I’ll be speaking at the 2014 Annual Delaware & California Law Update Symposium (Formerly Known as the Glendon Tremaine Symposium) sponsored by the Business & Corporations Section of the Los Angeles County Bar Association. I’ll be joined by Delaware lawyer Rolin P. Bissell of Young Conaway Stargatt & Taylor, LLP and former Governor Gray Davis. The symposium will be held on May 16 in Los Angeles. You can find out how to register here. The symposium was named for the late Glendon Tremaine, a Pasadena attorney who served as President of the LACBA.