California’s 50/90 Rule – When Being In Control May Mean That You’re Not

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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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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