Spice Corp. wants to acquire all the assets of Sugar Corp. Spice plans to pay for the assets by issuing its own corporate stock. Spice's board of directors has already approved the merger. In what circumstances would the approval of Spice's shareholders be required for this merger? Is the approval of Sugar's shareholders necessary? Explain.
What will be an ideal response?
When a corporation acquires all the assets of another corporation by a direct purchase, shareholder approval of the acquiring corporation (Spice) is not required except in two situations: (1) if the acquiring Spice Corp. plans to pay for Sugar'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 Spice's stock is sold on a national stock exchange, shareholder approval may be required if Spice plans on issuing a significant number of shares at one time, such as 20 percent or more of its outstanding shares. Sugar¾the corporation being acquired (selling all its assets)¾is obviously changing its business position substantially. Because of this, approval from both Sugar's board of directors and shareholders is required. In this case, a dissenting shareholder of Sugar can have appraisal rights. Because no shareholder approval is required for the acquiring corporation, appraisal rights are not available to Spice's shareholders.
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