Major Corporate Changes in New York

Which changes are governed by the BCL?

The New York Business Corporation Law (“BCL”) governs certain major internal changes to a corporation’s structure. These include: a) amendments being made to the certificate of incorporation; b) mergers; c) consolidations with other corporations; d) sale of assets; and e) dissolution of the company.

Legal status of the certificate of incorporation

The certificate of incorporation is a contract within the meaning of the “Impairment of Obligation of Contracts” clause of the United States Constitution, which states that a law cannot be passed which would impair the obligations of a contract.

The New York Constitution grants legislative authority to alter or repeal corporation laws. The BCL contains a similar provision.

Which powers are delegated?

Under the BCL, the power to amend the certificate of incorporation and make other major corporation changes has been delegated to a prescribed proportion of shareholders and, in certain cases, to the board of directors.

Types of major changes

While the trend is steering away from placing limits on the types and scope of changes which can be made, there are certain general principles which should be kept in mind.

Radical and fundamental changes – Older case law has been wary of allowing changes to be made to a corporation which are “too” radical or fundamental. While this doctrine has not been expressly vacated, its relevance nowadays is questionable, especially in light of the amendment powers the BCL grants to the board of directors.

Doctrine of vested rights – New York Law does not prohibit making amendments which would eliminate accrued but undeclared dividends, known as the vested rights doctrine. Amendments, however, may not impair constitutional rights.

Eliminating minority interests – A shareholder is not imbued with a constitutional right to remain a shareholder in a corporation, just to receive protection on the value of his holdings.

How are fundamental changes made?

There are two primary steps to effecting fundamental change in a corporation. Firstly, it must be authorized by the board, the shareholders, or both. Careful note should be taken of the vote which is needed in cases in which shareholder consent is required.

The second condition for effecting the change would involve its filing with the department of state. This is the mechanical procedure necessary to bring about the change. There is an exception to this rule, however, which applies in the case of a corporation selling its assets.