Plan of merger

(a) Subject to the limitations set forth in Code Section 14-3-1102, one or more corporations may merge into another corporation if the plan of merger is approved as provided in Code Section 14-3-1103. (b) The plan of merger must set forth: (1) The name of each corporation planning to merge and the name of the surviving corporation into which each plans to merge; (2) The terms and conditions of the planned merger; and (3) The manner and basis, if any, of converting the memberships of each corporation into obligations, memberships, or other securities of the surviving or any other corporation or into cash or other property in whole or in part. (c) The plan of merger may set forth: (1) Amendments to the articles of incorporation of the surviving corporation; and (2) Other provisions relating to the merger. (d) Any of the terms of the plan of merger may 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. As used in this subsection, the term ‘‘facts’’ includes, but is not limited to, the occurrence of any event, including a determination or action by any person or body, including the corporation. (Code 1981, § 14-3-1101, enacted by Ga. L. 1991, p. 465, § 1; Ga. L. 1997, p. 1165, § 15; Ga. L. 1998, p. 128, § 14; Ga. L. 2004, p. 508, § 47.) 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 710 14-3-1102 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. 14-3-1102. Merger without court approval; notice to Attorney General; receipt or retention by member of anything resulting from merger. (a) Without the prior approval of the superior court in a proceeding of which the Attorney General has been given written notice, a corporation described in paragraph (2) of subsection (a) of Code Section 14-3-1302 may merge with a corporation or foreign corporation or other entity, provided that: (1) The corporation or entity which is the surviving corporation or entity is a corporation or entity described in paragraph (2) of subsection (a) in Code Section 14-3-1302 after the merger; or (2)(A) On or prior to the effective date of the merger, assets with a value equal to the greater of the fair market value of the net tangible and intangible assets including good will of the corporation or the fair market value of the corporation if it were to be operated as a business concern are transferred or conveyed to one 711 14-3-1102 CORPORATIONS & PARTNERSHIPS 14-3-1102 or more persons who would have received its assets under subsection (b) of Code Section 14-3-1403 had it dissolved; (B) It shall return, transfer, or convey any assets held by it upon condition requiring return, transfer, or conveyance, which condition occurs by reason of the merger, in accordance with such condition; and (C) The merger is approved by a majority of directors of the corporation who are not and will not become members or shareholders in or officers, employees, agents, or consultants of the surviving corporation or entity. (b) At least 30 days before consummation of any merger of a corporation pursuant to paragraph (2) of subsection (a) of this Code section, notice, including a copy of the proposed plan of merger, must be delivered to the Attorney General. (c) Without the prior approval of the superior court in a proceeding in which the Attorney General has been given notice, no member of a corporation described in paragraph (2) of subsection (a) of Code Section 14-3-1302 may receive or keep anything as a result of a merger other than membership in the surviving corporation or entity. The court shall approve the transaction if it is in the public interest. (d) For purposes of this Code section, the definitions contained in Code Section 14-3-1108 shall be applicable. (Code 1981, § 14-3-1102, enacted by Ga. L. 1991, p. 465, § 1; Ga. L. 1997, p. 1165, § 16; Ga. L. 2004, p. 508, § 48.) COMMENT This section is based on the Model Act and has no counterpart in the Business Code. It requires corporations described in section 14-3-1302(a)(2) that would like to merge with another corporation either obtain prior judicial approval or follow the procedures outlined in subsection (a)(2) unless the surviving corporation would be a corporation described in section 14-3-1302(a)(2). In the latter event, the merger does not require either judicial approval or compliance with the provisions of subsection (a)(2). The requirements are the same as those imposed under section 14-3-1041 (relating to conversion from nonprofit to for-profit status), and are designed to prevent diversion of assets held by charitable corporations to non-charitable purposes. Under subsection (b), if the corporation wishes to follow the procedures of subsection (a)(2), it must notify the Attorney General 30 days prior to the proposed effective date of the merger. This will provide the Attorney General an opportunity to review the terms and effect of the proposed merger. If any member is to receive any economic benefit other than membership in the surviving corporation, prior judicial approval is required under subsection (c). In addition to satisfying the requirements of subsection (a)(2), the directors and officers must satisfy their duties of care and loyalty imposed by section 14-3-830 and part 6 of article 8. If judicial approval of a merger is sought, the court should approve the merger if it is in the public interest and if the requirements of this section have been satisfied. 712 14-3-1103 Note to 1997 Amendment Amendments were made to subsections (a) and (c) to conform the definitions to changes made in the Business Corporation Code in 1996. In each case where the word ‘‘corporation’’ appeared as the merging entity, it was followed with ‘‘or entity’’. These changes are intended to permit mergers of various types of entities, provided that each entity complies with the applicable laws governing mergers. ‘‘Entity’’ is defined in Code Section 14-3-1101(a)(2). 14-3-1103. Approval of plan of merger by members or directors; abandonment of plan. (a) Unless this chapter, the articles, the bylaws, or the board of directors or members acting pursuant to subsection (c) of this Code section require a greater vote or voting by class, a plan of merger to be authorized must be approved: (1) By the board; (2) By the members, if any, by two-thirds of the votes cast or a majority of the voting power, whichever is less; and (3) In writing by any person or persons whose approval is required by a provision of the articles authorized by Code Section 14-3-1030 for an amendment to the articles or bylaws. (b) If the corporation does not have members, the merger must be approved by a majority of the directors in office at the time the merger is approved. In addition, the corporation shall provide notice of any directors’ meeting at which such approval is to be obtained in accordance with subsection (b) of Code Section 14-3-822. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the proposed merger. (c) The board may condition its submission of the proposed merger, and the members may condition their approval of the merger, on receipt of a higher percentage of affirmative votes or on any other basis. (d) If the board seeks to have the plan approved by the members at a membership meeting, the corporation shall give notice to its members of the proposed membership meeting in accordance with Code Section 14-3-705. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the plan of merger and contain or be accompanied by a copy or summary of the plan. The copy or summary of the plan for members of the surviving corporation shall include any provision that, if contained in a proposed amendment to the articles of incorporation or bylaws, would entitle members to vote on the provision. The copy or summary of the plan for members of the disappearing corporation shall include a copy or summary of the articles and bylaws that will be in effect immediately after the merger takes effect. 713 14-3-1103 CORPORATIONS & PARTNERSHIPS 14-3-1103 (e) If the board seeks to have the plan approved by the members by consent or ballot in writing or electronic transmission, the material soliciting the approval shall contain or be accompanied by a copy or summary of the plan. The copy or summary of the plan for members of the surviving corporation shall include any provision that, if contained in a proposed amendment to the articles of incorporation or bylaws, would entitle members to vote on the provision. The copy or summary of the plan for members of the disappearing corporation shall include a copy or summary of the articles and bylaws that will be in effect immediately after the merger takes effect. (f ) Voting by a class of members is required on a plan of merger if the plan contains a provision that, if contained in a proposed amendment to articles of incorporation or bylaws, would entitle the class of members to vote as a class on the proposed amendment under Code Section 14-3-1004 or 14-3-1022. The plan is approved by a class of members by two-thirds of the votes cast by the class or a majority of the voting power of the class, whichever is less. (g) After a merger is adopted, and at any time before articles of merger are filed, the planned merger may be abandoned (subject to any contractual rights) without further action by members or other persons who approved the plan in accordance with the procedure set forth in the plan of merger or, if none is set forth, in the manner determined by the board of directors. (Code 1981, § 14-3-1103, enacted by Ga. L. 1991, p. 465, § 1; Ga. L. 2004, p. 508, § 49.) COMMENT This section is based on the Model Act. It establishes the requirements for approving a merger. Corporations without members. If a corporation does not have members, the merger may be approved by a majority vote of the directors in office at the time, unless this Code or the corporation’s articles or bylaws provide for a higher percentage approval. While it is normally not necessary to give directors notice of matters that will be considered at directors’ meeting, subsection (b) requires that corporations without members notify the directors that one of the matters to be considered at the meeting is a proposed merger. Corporations with members. If a corporation has members, the board must adopt the plan of merger and submit it to the members for their approval. Unless this Code or the corporation’s articles or bylaws require a greater vote, the plan of merger must be approved by two-thirds of the votes cast or a majority of the voting power, whichever is less. Voting by class is required if the plan contains a provision that would require a class vote if it were contained in an amendment to the articles or bylaws. In such situations, each class entitled to vote must approve the plan by two-thirds of the votes cast or a majority of the voting power of the class, whichever is less. The notice of the meeting or material soliciting the approval must set forth the material facts concerning the merger. To provide flexibility, subsection (c) allows the board or the members to condition approval of the merger upon its receiving a higher percent of votes than would normally be required, or to condition approval on any other basis. 714 14-3-1104