Many out-of-state practitioners are surprised to learn that California has special statutory provisions governing a merger when a constituent corporation (Section 161) or its parent (Section 175) owns, directly or indirectly, more than 50% of the voting power (Section 194.5) of the other constituent corporation prior to the merger. This is the so-called “50/90 Rule”. It can be found in the last sentence of Section 1101. Under the 50/90 Rule, the nonredeemable common shares or nonredeemable common equity of the acquired constituent corporation may be converted only into nonredeemable common shares of the surviving party or parent party.
The 50/90 rule does not apply...
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