Disposition of Company Assets in New York
What approval is needed?
Shareholder approval is required when a company wishes to sell, lease, exchange or otherwise dispose of all or substantially all of the corporation’s assets in New York, other than in the usual course of business which is actually conducted by the corporation.
What is the procedure?
Board approval – The board must authorize the sale or disposition and submit this to shareholder approval.
Approval by the shareholders – The requisite shareholder approval varies with the date of incorporation. For corporations in existence as of February 22, 1998, selling the company assets requires a two-thirds approval of votes of all the outstanding shares entitled to vote. However, in respect of corporations which were formed on this date and henceforth, a majority of the votes of all outstanding shares which are entitled to vote must be obtained to approve the sale, absent a clause in the certificate of incorporation stating otherwise.
State department filing requirements – There are no specific filing requirements to effect the disposition.
Abandoning the disposition – The board may decide to abandon the disposition in favor of third parties. It has the power to do so in spite of shareholder approval having been obtained in favor of the disposition.
Limitations to the actions – Up to one year is allotted from the time a deed, lease, or the like is recorded to bring an action for setting it aside as a result of noncompliance.
Rights of appraisal
A shareholder who is entitled to vote, but does not lend his approval to a sale or disposition of the corporate assets, has the right to payment of the fair value of his shares. There is an exception to this rule, however. It does not apply to transactions which are exclusively for cash in which shareholder approval is contingent on the dissolution and distribution of assets within a year’s time.
What is the rule concerning mortgages, pledges and security interests?
There is no need to obtain shareholder approval for the transpiring of mortgages, pledges or other security interests. Board action alone suffices for authorization, absent a clause in the certificate of incorporation stating otherwise.
Does corporate acquisition of assets impose tort liability?
As a rule, a corporation which acquires the assets of another does not bear tort liability which was incumbent on its predecessor.
There are exceptions to the above rule, however. The corporation can be held liable if: a) it assumed its predecessor’s tort liability either expressly or through implication; b) the seller and purchaser were consolidated or merged; c) the purchasing corporation was nothing more than a continuation of the one doing the selling; d) the transaction is done fraudulently in an attempt at circumventing such obligations.
While the preceding and succeeding corporations are free to allocate which will bear responsibility in the event of a customer filing suit, this will not affect the customer’s discretion to decide which he chooses to sue.