Mergers and acquisitions happen more often than most consumers are aware, and not just between big-name corporations. Medium-sized businesses acquire small startups with promising futures all the time, and large businesses acquire medium-sized ones that threaten their market share. As a business owner, director or shareholder, you may know this all too well. However, if you yourself have never been part of a merger, you may wonder about the basic legalities of performing one and, more to the point, how your entity can legally approve a merger. Section 21.452 of the Texas Business Organization Code outlines what parties to a merger must do to comply with the law.
Per this statute, to successfully approve a merger, the board of directors of the corporation must adopt a resolution that does two things: approves the plan to merge the entities and submit the plan of merger to the shareholders. In most cases, the law requires the board of directors to submit the plan of merger to the shareholders for approval and provides little exceptions to this rule.
Moreover, if a corporation must receive shareholder approval for a merger, the shareholders are entitled to receive the plan of merger regardless of whether the board of directors submits it for recommendation. This is the case even if the board of directors does not wish for the merger to take place. However, the board of directors may place conditions on the submission of the plan before submitting it to shareholders. If for whatever reason, the board of directors approves a plan of a merger but decides not to give a recommendation upon submittal to the shareholders, it may communicate its reason for doing so.
This article is for learning purposes only. You should not use it as legal advice.