BMX Corp wants to acquire all the assets of Cycle Racing Corp BMX plans to pay for the assets by issuing its own corporate stock. BMX's board of directors has already approved the merger. In what circumstances would the approval of BMX's shareholders be required for this merger? Is the approval of Cycle Racing's shareholders necessary? Explain

Answer 1

?When a corporation acquires all the assets of another corporation by a direct purchase, shareholder approval of the acquiring corporation (BMX) is not required except in two situations: (1 ) if the acquiring BMX plans to pay for Cycle Racing's assets with its own stock, and it does not have enough authorized unissued shares to make the purchase, and more shares need to be authorized, shareholder approval is necessary to amend the corporate articles; and (2 ) if BMX's stock is sold on a national stock exchange, shareholder approval may be required if BMX plans on issuing a significant number of shares at one time, such as 20 percent or more of its outstanding shares. Cycle Racing-the corporation being acquired (selling all its assets)-is obviously changing its business position substantially. Because of this, approval from both Cycle Racing's board of directors and shareholders is required.
In this case, a dissenting shareholder of Cycle Racing can have appraisal rights. Because no shareholder approval is required for the acquiring corporation, appraisal rights are not available to BMX's shareholders.