West's North Carolina General Statutes Annotated Currentness
Chapter 55. North Carolina Business Corporation Act (Refs & Annos)
 Article 11. Merger and Share Exchange (Refs & Annos)

§ 55-11-03. Action on plan

(a) After adopting a plan of merger or share exchange, the board of directors of each corporation party to the merger, and the board of directors of the corporation whose shares will be acquired in the share exchange, shall submit the plan of merger (except as provided in subsection (g)) or share exchange for approval by its shareholders.

(b) For a plan of merger or share exchange to be approved:

(1) The board of directors must recommend the plan of merger or share exchange to the shareholders, unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation, in which event the board of directors must communicate the basis for its lack of a recommendation to the shareholders with the plan; and

(2) The shareholders entitled to vote must approve the plan.

(c) The board of directors may condition its submission of the proposed merger or share exchange on any basis.

(d) The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with G.S. 55-7-05. The notice must state that the purpose, or one of the purposes, of the meeting is to consider the plan of merger or share exchange and contain or be accompanied by a copy or summary of the plan.

(e) Unless this Chapter, the articles of incorporation, a bylaw adopted by the shareholders, or the board of directors (acting pursuant to subsection (c)) require a greater vote, the plan of merger or share exchange to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group and, for the purpose of Article 9 or any provision in the articles of incorporation or bylaws adopted prior to July 1, 1990, a merger shall be deemed to include a share exchange. If any shareholder of a merging corporation has or will have personal liability for any existing or future obligation of the surviving corporation in the merger solely as a result of owning one or more shares in the surviving corporation, then, in addition to the requirements of this subsection, authorization of the plan of merger by the merging corporation shall require the affirmative vote or written consent of that shareholder.

(f) Separate voting by voting groups is required:

(1) On a plan of merger if the plan contains a provision that, if contained in a proposed amendment to articles of incorporation, would require action by one or more separate voting groups on the proposed amendment under G.S. 55-10-04, except where the consideration to be received in exchange for the shares of that group consists solely of cash;

(2) On a plan of share exchange by each class or series of shares to be acquired in the exchange, with each class or series constituting a separate voting group.

(g) Unless the articles of incorporation provide otherwise, approval by the surviving corporation's shareholders of a plan of merger is not required if all of the following conditions are met:

(1) Except for amendments permitted by G.S. 55-10-02, its articles of incorporation will not be changed.

(2) Each shareholder of the corporation whose shares were outstanding immediately before the effective date of the merger will hold the same shares, with identical preferences, limitations, and relative rights, immediately after the effective date of the merger.

(3) The number of voting shares outstanding immediately after the merger, plus the number of voting shares issuable as a result of the merger (either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger), will not exceed by more than twenty percent (20%) the total number of voting shares of the surviving corporation outstanding immediately before the merger.

(4) The number of participating shares outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger (either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger), will not exceed by more than twenty percent (20%) the total number of participating shares outstanding immediately before the merger.

(h) As used in subsection (g):

(1) “Participating shares” means shares that entitle their holders to participate without limitation in distributions.

(2) “Voting shares” means shares that entitle their holders to vote unconditionally in elections of directors.

(i) After a plan of merger or share exchange is authorized, but before the articles of merger or share exchange become effective, the plan of merger or share exchange (i) may be amended as provided in the plan of merger or share exchange, or (ii) may be abandoned, subject to any contractual rights, as provided in the plan of merger or share exchange or, if there is no such provision, as determined by the board of directors without further shareholder action.

CREDIT(S)

Added by Laws 1989 (Reg. Sess., 1990), c. 1024, § 12.17.   Amended by Laws 1993, c. 552, § 14, eff. Oct. 1, 1993; S.L. 2005-268, §§ 18 to 20, eff. Oct. 1, 2005.

AMENDED NORTH CAROLINA COMMENTARY

This section essentially follows the same pattern as former G.S. 55-108 and 55-108.1, except it does not carry forward the provision in former G.S. 55-108(b) allowing nonvoting shareholders to vote on mergers. However, the corporation must give nonvoting shareholders notice of the proposed shareholders' meeting so that they can act if their rights will be adversely affected. The Model Act's requirement that notice be given to nonvoting shareholders was retained in this section, in contrast to G.S. 55-10-03, involving shareholders' meetings to consider amendments to the articles of incorporation, because a proposed merger or share exchange is a fundamental change, whereas most amendments to the articles of incorporation are not. It should be noted that the last sentence in the first section of the Official Comment is not correct for this Act. That sentence indicates that nonvoting shareholders have no right to dissent and obtain payment for their shares in a merger or share exchange. G.S. 55-13-02(a)(1) and (2) give nonvoting shareholders this right.

The Model Act was modified in subsection (b) to conform to changes made in G.S. 55-10-03.

The Model Act was modified in subsection (e) by inserting between the word “incorporation” and the word “or” the words “a bylaw adopted by the shareholders.” This modification continues the existing concept of allowing a bylaw adopted by the shareholders to impose a higher quorum or voting requirement. The subsection was further amended by inserting at the end a clause providing that for purposes of Article 9 or already existing provisions in articles of incorporation or bylaws, a “merger” includes a share exchange.

Subdivision 11.03(f)(1) of the Model Act requires voting by voting groups on a plan of merger if the plan contains a provision that “if contained in a proposed amendment to articles of incorporation, would require action by one or more separate voting groups on the proposed amendment.” Under this provision, voting by voting groups may be required for one or more classes or series of shares of the surviving corporation as well as for one or more classes or series of shares of the surviving corporation as well as for one or more classes or series of the disappearing corporation. This provision was modified in subdivision (f)(1) to create an exception where the consideration to be received in exchange for the shares of the voting group consists solely of cash.

The Model Act was modified in subdivision (f)(2) by substituting “to be acquired” for “included.”

SUPPLEMENTAL NORTH CAROLINA COMMENTARY (2005)

Effective October 1, 2005, this section is amended (i) to require the approval of each shareholder who will have personal liability for any corporate obligation solely as a result of owning shares in the surviving corporation, (ii) to allow articles of incorporation to require shareholder approval of a merger for which G.S. 55-11-03(g) would not otherwise require shareholder approval, and (iii) to allow a plan of merger to be amended if the plan of merger makes provision for amendment.

HISTORICAL AND STATUTORY NOTES

2005 Legislation

S.L. 2005-268, § 18, eff. Oct. 1, 2005, rewrote subsec. (e), which prior thereto read:

“(e) Unless this Chapter, the articles of incorporation, a bylaw adopted by the shareholders or the board of directors (acting pursuant to subsection (c)) require a greater vote or a vote by voting groups, the plan of merger or share exchange to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group and, for the purpose of Article 9 or any provision in the articles of incorporation or bylaws adopted prior to July 1, 1990, a merger shall be deemed to include a share exchange.”

S.L. 2005-268, § 19, eff. Oct. 1, 2005, rewrote subsec. (g), which prior thereto read:

“(g) Action by the shareholders of the surviving corporation on a plan of merger is not required if:

“(1) The articles of incorporation of the surviving corporation will not differ (except for amendments enumerated in G.S. 55-10-02) from its articles before the merger;

“(2) Each shareholder of the surviving corporation whose shares were outstanding immediately before the effective date of the merger will hold the same shares, with identical designations, preferences, limitations, and relative rights, immediately after the effective date of the merger;

“(3) The number of voting shares outstanding immediately after the merger, plus the number of voting shares issuable as a result of the merger (either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger), will not exceed by more than twenty percent (20%) the total number of voting shares of the surviving corporation outstanding immediately before the merger; and

“(4) The number of participating shares outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger (either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger), will not exceed by more than twenty percent (20%) the total number of participating shares outstanding immediately before the merger.”

S.L. 2005-268, § 20, eff. Oct. 1, 2005, rewrote subsec. (i), which prior thereto read:

“(i) After a merger or share exchange is authorized, and at any time before articles of merger or share exchange are filed, the planned merger or share exchange may be abandoned (subject to any contractual rights), without further shareholder action, in accordance with the procedure set forth in the plan of merger or share exchange or, if none is set forth, in the manner determined by the board of directors.”

CROSS REFERENCES

Shareholder's right to dissent, see § 55-13-02.

LAW REVIEW COMMENTARIES

Evolution of Corporate Combination Law. Nelson Ferebee Taylor, 76 N.C.L.Rev. 687, (1998).

Federalizing the Tax-Free Merger. Steven A. Bank, 77 N.C.L.Rev. 1307, (1999).

Silencing the Shareholders' Voice. Thomas Lee Hazen, 80 N.C.L.Rev. 1897, (2002).

RESEARCH REFERENCES

Encyclopedias

Strong's N.C. Index 4th, Corporations § 201, Merger, Generally.

Strong's N.C. Index 4th, Corporations § 204, Action on Plan of Merger or Share Exchange; Business Corporations.

Treatises and Practice Aids

Fletcher Cyclopedia Law of Private Corporations § 7063, Shareholder Consent.

North Carolina Corporation Law and Practice § 20:1, Merger.

North Carolina Corporation Law and Practice § 20:2, Share Exchange.

North Carolina Corporation Law and Practice § 20:3, Plan of Merger or Share Exchange.

North Carolina Corporation Law and Practice § 20:4, Merger of Subsidiary.

North Carolina Corporation Law and Practice § 20:8, Merger With Nonprofit Corporation.

North Carolina Corporation Law and Practice § 20:9, Merger With Unincorporated Entity.

North Carolina Corporation Law and Practice § 21:1, Right to Dissent.

North Carolina Corporation Law and Practice § 54:8, Merger With Business Corporation.

NOTES OF DECISIONS

In general 1

1. In general

Under North Carolina law, failure to comply with statutory procedures required for corporate merger constitutes breach of director's fiduciary duty as well as breach of majority shareholders' duty to minority. Clark v. B.H. Holland Co., Inc., 1994, 852 F.Supp. 1268. Corporations 182.3; Corporations 310(1)

Whether majority shareholders acted in good faith in completing de facto of corporate merger, so as to be protected from liability by business judgment rule, was fact question precluding summary judgment in suit filed by majority shareholder alleging breach of fiduciary duty. Clark v. B.H. Holland Co., Inc., 1994, 852 F.Supp. 1268. Federal Civil Procedure 2513

N.C.G.S.A. § 55-11-03, NC ST § 55-11-03

Current through the end of the 2008 Regular Session.

© 2008 Thomson Reuters/West

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