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California law concerns for mergers or acquisitions

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    Yes, special rules exist in a number of different situations. For starters, triangular mergers in California require an Agreement of Merger to be filed with the Secretary of State. To meet this requirement typically two agreements are drafted, one that fulfills the requirements set forth in the California Corporate Code and another more detailed copy that includes all the necessary terms of the agreement. Further, California also provides approval rights for the board and shareholders of the parent company in triangular mergers.

    Parties doing business in California must also be mindful of “squeeze out” mergers. A squeeze out merger is a device used to eliminate unwanted minority owners. Under the California law, if a person or company owns more than 50 percent but less than 90 percent of a California corporation, the controlling shareholder cannot force a merger in which shareholders get cashed out, unless the corporation obtains unanimous approval of its shareholders or the merger is deemed to be fair in a fairness hearing conducted by the California Department of Corporations.

    California also has special requirements to guard against acquisitions proposed by interested parties. An interested party is one that has control or influences either directly or indirectly on one of the parties to the agreement and stands to benefit from the deal. In such instances, the interested party must provide the corporation or its shareholders with a written opinion concerning the fairness of transaction unless fairness of the transaction was determined at a fairness hearing. However, this rule does not apply if the corporation has fewer than 100 shareholders.


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