A short-form merger is a procedure allowed in some jurisdictions where a parent can merge with a subsidiary without shareholder approval. Short-form mergers can either be “upstream” (a merger of the subsidiary into the parent) or “downstream” (merger of the parent into the subsidiary). In a downstream merger the parent’s shareholders must approve the terms of the merger if as part of the deal the will receiver shares with different attributes than those previously held.
In California, if a subsidiary is wholly owned a merger can be completed by either adopting a resolution of merger or filing a certificate of ownership of the subsidiary with the Secretary of State. Conversely, a parent holding 90 percent or more of each class of a subsidiary’s stock can effectuate a short-form merger but must follow merger procedures designed to protect minority shareholders. When the subsidiary is a domestic corporation and not wholly-owned by the parent, the parent corporation must give notice to the subsidiary’s shareholders before the merger can be completed. The notice must contain a copy of the resolution or plan of merger and information concerning dissenters’ rights. Failure to follow these procedures can engender litigation.
