COMMENT

This article and section are based on the Model Act. Unlike the Business Code, which imposes virtually no restrictions or limitations on statutory mergers, this article restricts mergers involving charitable corporations described in section 14-3-1302(a)(2). Unlike the Business Code, this Code does not authorize short-form mergers or the nonprofit equivalent of a reorganization by share exchange, both of which are inappropriate in the nonprofit context. Like the Model Act and the Business Code, this article eliminates the concept of "consolidation."

Unlike the Business Code, this Code does not provide for dissenters' rights. This is for two reasons. First, members of charitable nonprofit corporations have no economic interest in the corporation. Second, while members of non-charitable corporations, such as social or athletic clubs, may have an economic interest in their corporation, the concept of dissenters' rights seems inappropriate in the nonprofit context. Although this Code provides no specific remedy for a wrongful merger, members opposed to a proposed merger could petition to enjoin it, and could petition to rescind it after the fact. In addition, money damages might be appropriate in the context of non-charitable corporations. However, when a merger has been properly approved under this article, and the directors have complied with their duties of care and loyalty, a court should not enjoin or rescind the merger. On the other hand, if the merger was not properly approved, the court should consider all the facts and circumstances in fashioning a remedy, including the good faith of the parties, the fairness of the merger, the nature of any omission or misstatement, and whether the merger would have been approved in any event. Potential remedies include rescission of the merger, an order requiring payment of damages, or validation of the merger notwithstanding the failure to comply with this article.

Note to 1997 Amendment Amendments were made to conform the definitions to changes made in the Business Corporation Code in 1996. Subsection (a), containing definitions, is new, and the following sections were redesignated. References to specific types of organizations were replaced with references to "entity" in subsections (b), (c) and (d). Subsection (c)(3) was amended to add references to "shares, financial or beneficial interests or units" to accommodate mergers involving business organizations. These changes are intended to permit mergers of various types of entities, provided that each entity complies with the applicable laws governing mergers.