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Companylaw:fundamentalchangesina company

Reading1:IntroductiontochangesincompaniesThistextprovidesanoverviewoftheareaofcompanylawdealingwiththechangesmadetoacompanythatgenerallyrequiretheinvolvementof lawyers.

1 Before you read the text, matchthese keyterms (1-7), which all refer to types

of changes in companystructure,with their definitions (a-g). If necessary,consult the glossary.

1 constitutionalamendment2 consolidation

3 acquisition of controllingshares4 voluntaryliquidation5 merger6 sale of substantiallyall assets

7 compulsorywinding-up

a the liquidationof a companyafter a petition to the court, usually by acreditor

b the combiningof two companies to form an entirelynew company

c liquidationproceedingsthat are supported by a company'sshareholdersd a change in a company'sname,capital or objectse the purchase of shares owned by shareholders who have a controlling

interest

f the acquisition of one companyby another,resulting in the survival of one ofthem and dissolution of the other

g a form of acquisition wherebyall or almost all assets and liabilities of acompanyare sold

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Atsome a , -the company.Some of these changes may merelybe basically administrative,such as changingthe company'sname. Otherchanges mayentail alteration of the company'sstructure. Thesechanges sometimes place the rights of creditors and minority shareholders at risk and are thus

subject to special statutory regulation.The in examples of t pe alter~tions.~hjchf~11., c. . "" ',''''r' .". .:,eo, . '",\~.'.'. ".f:'"". "f'Into this group are constltutloli'alamendm , mergers,cons tlO ale'ptsubstantiallyall ,assets,acquisitionof controllingsharesandliquidation.

Themostcommonconstitutionalalterationsin a companyIncludealterationof thecompany'sname,capital or objects. to English law,a chan of name canberesolutionin anameof thecompanybechangedto the newname.A signedcopyof the resolutioncontainingthenewnamemustthenbesubmittedto the RegistrarofCompanies.Ifthesubmissionis inorder,CompaniesHousewill issuea Certificateof IncorporationonChangeofName.Acompanymayalterits caDitalstructure.Dmvidedthat arpower.Suchan

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1 (US) tender offer

2 (US) involuntarybankruptcy

3 (US) also dissolution or winding-up

.* pp n in2 Thetextcontains several pairs of opposing concepts. Find the counterpart of

each of these words.

1 acquiringcompany2 hostile takeover

3 acquirer

4 compulsorywinding-up5 solvent

3 Work in pairs. Making use of the prepositions introduced in the previous unit

(as opposed to, unlike, in contrast to), take turns contrastingthe pairs ofopposing concepts listed in Exercise 2.

EXAMPLES: 11'1coY\tr

ning 1:.on

ning

A lawyer'sinvolvementinthemergersandacquisitionsofcompaniesoftenentailscommunicatingwiththepartiesconcerned:a lawyermayexplaintotheownerofacompanywhatprocedureshavetobecompletedinthecourseofanacquisitionorinformshareholdershowthechangesresultingfroma mergerwillaffectthem.

Inthefollowinglisteningexercise,youwill heara lawyerspeakingtoa groupofbusinessowners.Eachofthesebusinessownersis consideringacquiringanotherbusiness.

4 ~~Listento thefirstpartof the presentationandchoosethecorrectanswerto eachof thesequestions.

1 Which of these is the most likelyentry for the talk in the programme?

a Mr A. Crawfordof Corporate Restructuring(eveningsession)b Mr A. Cranfordof Mergers and Acquisitions (eveningsession)c Mr A. Crawfordof Mergers and Acquistions (eveningsession)d Mr A. Crawfordof Mergers and Acquisitions (morningsession)

2 What is the speaker's aim?

a to providethe business owners with an overviewof the law of mergersand acquisitions

b to persuade the business owners that they should use this opportunityfortheir businesses to grow

c to informthe business owners what they can expect if they decide tocarry out an acquisition

d to tell the business owners about the process of makingtheir businessesmore attractiveas potentialtargets

3 Which of the followingtopics will not be included in the presentation?a factors involvedin deciding on a companyto acquireb staffing issues after an acquisition

c evaluatingthe prospectiveacquired companyd details of one specific deal the speaker has carried out

5 ~~Listen to the second part of the presentation, in which the speakerdiscusses legal aspects of acquisitions. Decide whether these statements aretrue or false.

1 The important legal steps that must be carried out in the course of the

acquisition process can be completed in any sequence.

2 'Due diligence' refers to the process of gatheringand analysing financialinformationand other relevantinformationabout a business before it isacquired.

3 One aspect of due diligence is verifyingownership of intellectual property.4 In the course of due diligence,the acquirer should terminate all of the target

company'scontracts with suppliers.

5 A warrantyis written statement by a partyattesting that a fact relevanttothe deal is true.

6 The target mayprovideindemnitiesto protectthe acquirer against futureliabilities.

,

.. . .InnIng p nInListening1,thelawyerbeganhispresentationbyintroducinghimselfandhistopic.Followingthis,heprovidedanoverviewofthepointsheplannedtocover.Healsoinformedhislistenersaboutgeneralmattersrelatedtohispresentation,suchaswhethertherewouldbea breakorif questionswerepermitted.

Thebeginningpartofanypresentation,whethershortorlong,informalorformal,shouldfulfilthesefunctions.Listenersappreciateknowingwhatawaitsthemandwhattheycanexpecttohear.

6 .. ~The following list provides useful phrases for the beginningof a

presentation. Listen to the first part of the presentationagain and completeeach of the phrases using no more than three words.

1 Someof youmayknowmealready,butallowme.My name's Adrian Crawford.

2 Mergers and Acquisitions department of our firm.3 I'll acquisitions this evening.4 I'm you about...5 Please feel free to at anytime, should you have any

questions.

6 At this point, I'd like to give you a short mypresentation.

7 I'm going to start with a how to ...8 Then I'll . the issue of ...9 After that, I'll the process of ...

10 I think we'll. w a short break at that point.11 After the break, I'll the legal aspects...12 At the end, I'll a look at ...13 There'll be time for at the end.

..........

7 Matchthe phrasesfromExercise6 (1-13) with the function (a-c) they serve.The first phrase has been done for you.

a introducingthe speaker (name, affiliation) 1, ...b informingabout points that will be covered

c telling listeners about practical matters related to the presentation

ng 2: in-Thetextonpage52isanexcerptfromanarticleaboutspin-offs,analterationinthestructureofa company.ItappearedonthewebsiteofaUSfirm.Theprimarypurposeofthistextistoprovideinformationforclients.Doyouthinkwebsitearticlesareaneffectivewayforclientstogetinformationaboutcomplextopics?

8 Readthroughthetextquicklyandanswerthis question.

A subsidiary is a companywhich is controlled by another throughshareownership. What exactlyis a spin-off?

9 Decide which of these phrases (a-d) best expresses the topic of each

paragraph(1-4).

a Advantagesof IRS Code Section 355

b Reasons for creating spin-offsc Definition of the term spin-offd Various types of spin-offs

Unit4 Companylaw:fundamentalchangesin a company

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1 The term 'spin-off' refers to any distribution by a corporation to itsshareholders of one of its two or more businesses. Sometimes the

spun-off business is transferred first to a newly formed subsidiarycorporation. The stock of that subsidiary is then distributed to the

shareholders of the distributing corporation. Other times, the stock ofa pre-existing subsidiary is distributed.

2 Spin-offs can include distributions on a proportional basis (i.e. pro

rata),in which the receiving shareholders do not give up any of their

stock in the distributing corporation when they receive the spun-offstock. Sometimes the distribution only goes to certain shareholders. In

this case, the receiving shareholders give up some (or aiDof their

stock in the distributing corporation in exchange for the stock of the

controlled subsidiary. Non-pro-rata spin-offs are sometimes referred to

as 'split-offs'.A non-pro-rata spin-off that results in one group of

shareholders holding all the stock of the distributing corporation and a

second group holding all the stock of the former subsidiarycorporation is referred to as a 'split-up'.

3 A spin-off is used to separate two businesses that have become

incompatible. In a case where investors and lenders may want to

provide capital to one but not all business operations, a spin-off canbe a good solution. Spin-offs are also used to separate businesses

where owner-managers have different philosophies. Spin-offs mayfurthermore be used by publicly held companies when the stock

market would value the separate parts more highly than combined

operations. The separation of business operations could also lead to agreater entrepreneurial drive for success.

4 The tax characteristics of a qualifying spin-off under Internal Revenue

Code Section 355 make this an attractivetool for solving certain

corporate challenges. Without Section 355, the distributing

corporation would have to recognize a gain on the stock it distributed

as if it had sold that stock. In addition, shareholders receiving thedistribution would be taxed on the shares received, either as a

dividend or as capital gain. This double tax usually makes spin-offs

extremely expensive. Code Section 355 permits a spin-off to be

accomplished without tax to either the distributing corporation or to

the receiving shareholder. Any gain realized by the shareholder isdeferred until the stock is sold.

10 Read the text again and answer these questions.

1 Underwhich circumstances would a companytypicallydecide to make aspin-off?

2 What benefits for the corporationand for the shareholders result fromInternal RevenueCode Section 355?

,

ng: ng n-Oneofyourcorporateclientsis planningtocarryoutaspin-off.Hehaswrittenyouthefollowingemail.

Dear Mr Daniels

Ms Diaz has told methat you are goingto be at the shareholders'meetingnextWednesday.Would you mindaddressingthe groupbriefly beforethe meetingstarts? I thinkthey would appreciatesome basic informationaboutthings like what a spin-off is, whythespin-off will be done,etc. just so theycan understandthe rationalebehind it better.Of course, it's very importantthatthey realise thatthe spin-off will notaffect them negatively.I think 10-15minuteswill beenoughfor this, andthen youand I could field theirquestions andtry to clear up anymisunderstandings.

Please let meknowwhatyouthink.

Best wishes

Adam Tyler

11 Using the presentation in Listening 1 as a model and the informationfrom

Reading 2, preparethe beginningof such a presentation.

12 Taketurns presentingyour beginningto a partner.Check that your partner has:

0 introducedhim/herself0 informedyou about what points will be covered0 mentionedany practical matters (questions, timing, etc.)

ning 2: chLawyersplayanimportantroleintheprocessesinvolvedinalteringthestructureofacompany.Forexample,theyreviewthedocumentsconnectedwithsuchchangestoensurethatall therelevantstatuteshavebeencompliedwith.

Checklistsareusefultoolsformakingsurethattheproperprocedureshavebeenfollowedandthenecessarydocumentsdrawnup.Onceanissuehasbeenaddressed,a lawyerwillticktheboxtoconfirmthathehasconsideredtheparticularmatterlisted.Youwill heartwolawyersdiscussingsuchachecklist.A moreexperiencedlawyerguideshisyoungercolleaguethroughthelistofactionstobetakenanddocumentstobefiled.

13 .. ~ Listen to the dialogue and answer these questions.

1 What kind of change are they discussing?

2 What two meetings need to be held?3 How manydocuments need to be filed at Companies House?

Unit4 Companylaw:fundamentalchangesinacompany

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14 .. ~Listen again and complete the missing items (1-10) in the left-handcolumn of the checklist, using up to three words for each space.

0

Checkliston increasinga company'ssharecapital Maftercol1sidered

. Checkthememorandumof associationtoideQtifythecompany's1)........................ . Seealsoauthoritytoincreasecapitaltirid(\rArticles.Considerwhethercreationof newshareswill involvevariationofclassrights.If so,appropriateconsentsmayberequired.

. Has the company issued all its sharecapital?

. 2). "'" of increaseof sharecapital.

. Convene 3) ........................ atreasonablenotice:Normalprocedureor considerusingwrittenresolutionprocedure.

. Ensureaquorumof 4) . .... . ispresentattheboardmeeting.

. Directorshaveto5) ....................... thattheywill puttheincreaseof sharecapitalto voteatanextraordinarygeneralmeeting(EGM).

. ConveneanEGM by noticeor usewrittenresolutionprocedure.

. If written resolution procedure is not used, notice to shareholdersmuststate:a dateb time

c placed proxye ordinaryresolutionf consentto6) .... .......... ..........

. EQsurethe 7) .......................... presidesattheEGM andthataquorumofshareholdersispresent.

. Passtheordinaryresolutionby 8) .... ...... "'" onashowofbMdsorbypoll.

. boardandEGMminutes.

. LodgeatCompallies.Hotise9) . .............. ............. days:a ordiIlarY'tesoI1.lti.oll;

b noticeof illc:reaseof 10)""'''''''''''''''' ....,... (Form123);c amendedmemorandtitnand ,y)articlesof

association.

9 e 1: ning p

Whenexplaininghowa procedureis carriedout,the orderof thestepsto betakencanbe indicatedusingsequencingwords.Lookat thefollowingexamplesfromthe listeningtext:

Well,thefirst thingyouhaveto do is checkthememorandumofassociationThenyouhaveto findoutwhetherthey'veissuedall theirsharecapitalalreadyor not.Thenextstep wouldbe todeterminetheamountof increaseof sharecapital.ButbeforetheEGMcantakeplace,theshareholders to be informedbynoticeabouttheFinally,wit!Companies

Hereare

After

Subsequently

Another

necessary:

andit'snecessarythata

15 Think about a complicated legal procedureyou have to deal with in the course

of your work or which you have studied. Make a checklist to identifywhat youhave to do to complete this procedure. Explainthe procedurecarefullyto your

partner.He/She should make notes. When you have finished, ask your partnerto repeat back to you the stages of the procedure.

ng3: e ngWhenfundamentalchangesare madeto a company,meetingsof the directorsand/orshareholdersmustbe convenedsothat the proposedchangescanbevotedon.The

official recordof the proceedingsof sucha meetingis calledthe minutes.

16 Discuss these questions.

1 Who writes the minutes of a meeting?2 When would a lawyerhaveto read such a text?

17 The text on page 56 is the minutes of a meeting held by board members of a

small company.Read through the minutes quickly.Whywas the board meetingcalled? Whywas the EGM called?

Unit4 Companylaw:fundamentalchangesin a companyE

Longfellow LtdMinutes of a meeting of the Board of Directors he.ld at COI11Petnypr~t!;ii$~$,Langdon Building, Sherwood Road, Manchester

On:

Present:10 September,2005, at 3 p.m.

Debra Smith (Chairperson)

Anna Bean (Director)

ClaireThurman (Secretary)

1 The Chairperson confirmed that noticeof the meetinghad been givento altthe DirectorsCompany and that a quorum of the Board of Directorswas presentat the meetiog.

2 Applicationswere presentedto the meetingfrom Debra Smith, Anna Bean and Allison 8cf'iarpfor theallotmentof 10,000, 20,000 and 20,000 shares respectivelyby the Company, and it was resolvedthat theirapplicationsbe approved subject to the approval of the extraordinarygeneralmeeting.

3 Itwas noted that Debra Smith and Anna Bean had declared their interestsin the shares pursuant tos317 Companies Act 1985.

4 The Chairperson reportedthat it was proposed to increasethe authorised share capital of theCompany by 50,000.

5 The Chairperson reportedthat the directors requiredauthorityto allotshares, as therewas nopower in the Company's articlesof association.

6 The Chairperson also informedthe members that the Company would need to disapply s89Companies Act 1985 in relationto pre-emptionrights.

7 There was presentedto the meetinga notice of an extraordinarygeneralmeetingat whichresolutionswould be proposed to implementthe above proposals to increasethe Company's sharecapital;to authorisedirectors to allot the new shares; and to disapplythe requirementsof s89Companies Act 1985. It was resolvedthat the notice be approved, that the Secretarybe instructedto send it to all the members and the auditors of the Company, and, subject to all the membersagreeingto short notice, that the meetingbe held immediately.

8 The meetingwas adjourned to enable the extraordinarygeneralmeetingto be held.

9 The meetingresumed at 8 p.m. and the Chairperson reportedthat the resolutionsset out in thenotice of an EGM had been duly passed.

10 Itwas resolvedthatthe applicationby Debra Smith, Anna Bean and Allison Sharp for 10,000,20,000 and 20,000 shares respectivelybe accepted and that the capital of the Company beallottedto the applicantson the terms of the application.

11 The Secretarywas instructedto enter the names of the applicants in the registerof members of theCornpany as the f'ioldersof the shares allotted.

12 1"heSecretarywas [nstructedto prepareshare certificatesin respect of the shares allottedand toarrangefOrthe common seal to be affixedto th.ernand to deliverthe share certificatesto theapplicants.

13 and filewith theRegistrar of Companies: Form 88(2)3trnade; Form 123 (increaseof capital);andWithraisingcapital for the Company.

Was closed.

Chairperson

~

18 Read the minutes again and answer these questions.

1 Which resolutions were passed at the meeting?2 What steps must be undertakenbythe Secretarysubsequent to the meeting?

19 As a record of what occurred at a meeting,the minutes include an account of

what the participants said. Verbs referring to speech acts, such as to stateorto propose, are commonlyused. Which verbs of this kind can be found in theminutes?

e 2: 020 The minutes on page 56 contain examples of verbs that often appear together

with the nouns meetingand resolution. Find and underline them.

21 Complete the table below to show which of the verbs in the box can be used

with meetingand resolution. You may need to consult a dictionary.

adopt arrange attend authorisedraft endorse introduce opposeschedule summon table

call cancel convene

pass preside at

meeting resolution

n9 .. h ho r 9Theletteron page58hasbeenwrittenbyanAmericanlawyerin responseto a queryconcerningthe rightsof a shareholder.

22 Read the letter and discuss these questions.

1 What kind of letter is it?

2 What exactly is the query it responds to?

23 Read the letter again and decide whether these statements are true or false.

1 The shareholder seeks to set aside the transaction on the grounds that hewas not able to vote at the shareholders meeting.

2 The lawyerstates that in a true merger,the statutes do not provideappraisal

rights to the shareholder.3 The lawyerpoints out that looking at the substance ratherthan the form of

the transaction mightappear at first to help the shareholder's case.4 The lawyerbelieves that it is likelythat the courts in the jurisdiction in

question will decide along the lines of Heil v. Star Chemical.

Unit4 Companylaw:fundamentalchangesin a company

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24 Match these words and phrases from the letter (1-5) with their synonyms(a-e).The words are in italics in the letter.

1 instant

2 in essence

3 persuasive4 hesitant

5 mere

a basicallyb simplec reluctant

d convincinge present

25 Accordingto the letter of advice on page 58, there is a good reason whya courtmight rule in favour of the shareholder,but also a good reason why it would not.Discuss these reasons with a partner and decide how you would advise yourclient in this situation.

r 0 ning

Referring to previous contactWithreference to your letter of 15 February...In responseFurther to

ThankYOL

Stating the reason for writingI am writing to informyou that...

Closing, offering further assistancePlease contact me again if I can help in any way.

Should you have any further questions, do nothesitate to contact me.

Referring to future contact

I look forward to your reply/ to meetingyou / to

26 The letter of advice on page 58 has been written in response to a query.

1 How does the lawyermake referenceto this query?2 How is the previous conversationbetween lawyerand client referredto?3 At the end of the letter,which sentences are used to indicatewillingness to

providefurther help and to invitefurther contact?

27 As the associate for corporate counsel to LongfellowLtd, you have receivedanSAMP

:mE email from a shareholder requesting informationabout what happened at the~NSWER

p.288 board meetingand the EGM documented in the minutes in Reading 3 on page56. Respondto the requestof theshareholder.In youremail,youshould:0 refer to the email sent bythe shareholder;0 state the reason for writing;0 explain the circumstances under which the meetings were held;0 summarise the content of the resolutions passed;0 offer to providefurther assistance if necessary.

D'I~\ Unit 4

To improveyourweb-based research skills, visit www.cambridge.orgjeltjlegalenglish.click onResearch Tasks and choose Task 4.

Unit4 Companylaw:fundamentalchangesin a company

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Vocabulary:You mayneed to

1 pause suspend

2 accordingto related to3 exempt liable freed4 convoke call contend5 continue resume6 said relevant

convene

Vocabulary: definitions Match thesetheir definitions (a-h).

1 pro-ratadistribution2 under Internal Revenue

3 prior to distribution

4 become a party to a transaction

5 no consideration is paid6 de facto merger7 applicablestatutes

8 provisionsgoverningmerger

Word formation Complete this table by fillingUnderlinethe stressed syllable word

Verb ! Abstract noun

dis!ijbute,distribute d1,stribtion

merger

regulation

submit

approval

consolidate

acquire

liquidation

cancel

alteration

using the

complywith dispose of enter into lodge at preside at

12 the EGM.3

4 respectof

a definitive

EXAMPLE: wY\ve,\l\e,

convenereduce

passfollow resolution

each of the

Vocabulary: antonyms Match these words (1-8) opposites (a-h).

12 asset3 hostile

4 oppose

5 purchase6

7 newlyformed8 dissolution

a

b

c pre-existingd approve

e voluntaryf liability

sale