Law reviews.

- For article, "The Acquisition Process and the Closely-Held Corporation: Selected Legal Aspects," see 36 Mercer L. Rev. 567 (1985). For article, "2006 Amendments to Georgia's Corporate Code and Alternative Entity Statutes," see 12 Ga. St. B. J. 12 (2007).

COMMENT

Source: Model Act, § 11.01. There are no substantial changes from prior law, § 14-2-210, except elimination of the concept of a "consolidation," which appeared in § 14-2-211. Generally a triangular merger into a merger subsidiary can achieve the same results as a consolidation.

Subsection (a) authorizes a statutory merger, to be accomplished by the adoption of a plan of a merger under subsection (b), approval of the transaction by the shareholders (if required by Section 14-2-1103), and filing articles of merger or a certificate of merger under Section 14-2-1105. Upon the effective date of the merger, the surviving corporation becomes vested with all the assets of the disappearing corporations and becomes subject to their liabilities.

Under the Code there are virtually no restrictions or limitations on the terms of a statutory merger. Subsection (c) permits amendments to the articles of incorporation of the surviving corporation as part of the plan of merger, so the effect may be that the surviving corporation is essentially different from either of the constituents, thereby achieving the effect of a consolidation under prior law. Shareholders of the disappearing corporations may receive securities of the surviving corporation, securities of a third corporation, e.g., shares issued by the parent of the surviving or disappearing corporation (which may be publicly traded and marketable while the shares of the surviving or disappearing corporation are not), or cash or other property (a "cash" or "cash-out" merger). Some of the holders of a single class of shares may be required to accept securities or properties while the remaining holders may be compelled to accept different securities, property, or cash. Shares may also be canceled, pursuant to the express authority of Section 14-2-1004(a)(10). The capitalization of the surviving corporation may be restructured in the merger, or its articles of incorporation may be amended by the articles of merger or a certificate of merger in any way deemed appropriate. Any other provisions considered necessary or desirable with respect to the merger may be included in the plan of merger.

Merger transactions may give rise to voting by the holders of nonvoting shares under Section 14-2-1103(f), and dissenting shareholders may have dissenters' rights under Section 14-2-1302.

A transaction may have the same economic effect as a statutory merger even though it is cast in the form of a nonstatutory transaction. For example, assets of the disappearing corporations may be sold for consideration in the form of shares of the surviving corporation, followed by the distribution of those shares by the disappearing corporations to their shareholders and their subsequent dissolution. Transactions have sometimes been structured in nonstatutory form for tax reasons or in an effort to avoid some of the consequences of a statutory merger, particularly appraisal rights to dissenting shareholders. These problems should not occur under the Code since the procedural requirements for authorization and consequences of various types of transactions are largely standardized. For example, dissenters' rights are granted not only in mergers but also in share exchanges, in sales of all or substantially all the corporate assets, and in amendments to articles of incorporation that significantly affect rights of shareholders. Further, each section of the Code has independent legal significance, so that courts should respect the form of the transaction.

Note to 2003 Amendment Code Section 14-2-1101(d) is added to allow any of the terms of the plan of merger to be made dependent upon "facts" ascertainable outside of the plan of merger, provided that the manner in which such facts shall operate upon the terms of the merger is clearly and expressly set forth in the plan of merger. This added flexibility for a plan of merger follows Section 11.02(d) of the Model Business Corporation Act and Delaware General Corporation Law Section 251. The definition of "facts" is added to be consistent with that found in Code Sections 14-2-601, 14-2-602 and 14-2-624.

Note to 2006 Amendment The amendments to subsection (b)(3) of Code Section 14-2-1101, subsection (b)(3) of Code Section 14-2-1102, subsection (b)(2) of Code Section 14-2-1104 and clause (C) of subsection (d)(1) of Code Section 14-2-1109 clarify existing law by expressly recognizing the possibility of different treatment of shareholders in a plan of merger or share exchange (i.e., that some of the holders of a single class of shares or series of shares may be required to accept securities or properties while the remaining holders of such class or series may be compelled to accept different securities, property, or cash). The amendments require that where holders of the same class or series of shares are to be treated differently in a plan of merger or exchange, the plan of merger or exchange must set forth the manner and basis for the conversion of shares of each class or series or group of shareholders who are to be treated differently.

In order to provide additional protection to shareholders who may be treated differently in a plan of merger or exchange, new clause (B) of subsection (d)(1) of Code Section 14-2-1302 would exclude such shareholders from the "market exception" of Code Section 14-2-1302, which eliminates dissenters rights for transactions involving the issuance of shares of a public corporation to shareholders of a publicly held Georgia corporation.

New subsection (c)(2) of Code Section 14-2-1101, which is drawn from Sections 11.02(e) and 11.03(e) of the Model Business Corporation Act and Section 251(d) of the General Corporation Law of the State of Delaware, confirms and clarifies a corporation's authority to include provisions in plan of merger that would permit a corporation to amend the plan in certain respects subsequent to shareholder approval. Comparable provisions with conforming changes are included in amendments to Code Sections 14-2-1102 (Share exchange) and 14-2-1109 (Merger with other entities).

The amendments to these provisions are generally designed to permit amendments to agreements of merger or share exchange after the shareholders have approved such an agreement and prior to the effective time of such a merger or share exchange. These amendments specifically do not permit such a change in the amount and kind of consideration to received in the merger or share exchange or in the terms of the articles of incorporation (or comparable governing document) of the surviving corporation (or other entity) to the extent such change would adversely affect the shareholder recipients without express prior authorization of the shareholders. In addition, no alteration or change in the terms and condition of the merger or share exchange would be permitted without express prior authorization of the shareholders if it would adversely affect the shareholders who have already voted on the agreement in any material respect.

Amendments to a plan of merger or share exchange made after the articles or a certificate of merger are filed but prior to the effective time of such merger or share exchange require that a certificate of amendment be delivered to the Secretary of State of the State of Georgia for filing prior to the effectiveness of the merger or share exchange.

Cross-References Abandonment of merger, see § 14-2-1103. Amendment of articles of incorporation, see § 14-2-1106. Approval by shareholders, see § 14-2-1103. Articles of merger or share exchange, see § 14-2-1105. Certificate of merger or share exchange, see § 14-2-1105. Dissenters' rights, see Article 13. Effect of merger, see § 14-2-1106. Merger of subsidiary into parent, see § 14-2-1104. Merger with foreign corporation, see § 14-2-1107. Merger with Secretary of State corporation, see § 14-2-1108. Merger with joint-stock association, see § 14-2-1109. Publication of notice of merger or share exchange, see § 14-2-1105.1. Share exchange, see § 14-2-1102.

JUDICIAL DECISIONS

RESEARCH REFERENCES