⚡ 10-Second Rule
Bet-the-company moves need the board's plan plus the owners' vote — and outvoted owners can demand cash for their shares instead.
🧒 ELI-10 Scene
The Oakdale community garden votes to merge with the bigger Riverside garden. The garden committee can't do this alone. First the committee proposes the merger. Then every member votes. Suppose Nadia hates the idea but loses the vote. She isn't trapped. She can say, before the vote, "if this passes, buy me out fairly." She must not vote yes. Then she turns in her membership and gets fair cash. The majority moves the garden; Nadia leaves with a fair price.
⚖️ Actual Rule
Fundamental changes require board adoption plus shareholder approval: mergers and share exchanges, MBCA § 11.04; a sale of assets that would leave the corporation without a significant continuing business activity, MBCA § 12.02 (retaining 25% of total assets and 25% of income or revenues is a safe harbor); dissolution, MBCA § 14.02; and most amendments to the articles, MBCA § 10.03. Traditional statutes required approval by a majority of all outstanding shares; the current MBCA requires only that, at a meeting with a quorum, votes cast for the change exceed votes against. Ordinary-course sales and mortgages of assets need no shareholder vote. MBCA § 12.01. A shareholder entitled to vote on a merger, a share exchange, or a qualifying asset sale (and certain amendments) has appraisal rights — the right to dissent and be paid fair value in cash — subject in many states to a market-out for publicly traded shares. MBCA § 13.02. Mechanics matter: the dissenter must deliver written notice of intent to demand payment before the vote, must not vote in favor, and must then perfect the demand. MBCA ch. 13. A parent owning at least 90% of a subsidiary may merge it out in a short-form merger without the subsidiary's board or shareholder approval, with appraisal as the minority's remedy. MBCA § 11.05. Some courts treat an asset sale structured to mimic a merger as a de facto merger carrying merger protections, Farris v. Glen Alden Corp., 143 A.2d 25 (Pa. 1958), while Delaware rejects the doctrine, giving each statutory route independent legal significance. Hariton v. Arco Electronics, Inc., 188 A.2d 123 (Del. 1963). An asset purchaser generally does not inherit the seller's liabilities absent assumption, a de facto merger, mere continuation of the seller, or a fraudulent transfer. [NJ-VARIANT: flagged for future Eli Explains NJ Law module]
ELI-10 translation: the committee proposes, the owners approve, and unhappy owners who follow the steps get bought out at a fair price.
🔍 Ask These Questions
- Is the move fundamental — merger, sale of nearly all assets, dissolution, big amendment? (Is the garden itself changing, not just buying seeds?)
- Did the board adopt and the shareholders approve? (Committee proposal first, member vote second — both required.)
- Whose shareholders vote? (The company being swallowed or emptied votes; a buyer of assets normally doesn't.)
- Does appraisal attach, and were the steps followed? (Say "buy me out" before the vote, and never vote yes.)
- Is it a short-form merger? (A 90% parent can absorb its child without asking; the minority just gets fair cash.)
- Is an asset sale really a de facto merger? (Some courts call a duck a duck; Delaware doesn't.)
- Does the buyer inherit debts? (Usually no — unless it promised, merged in disguise, is the same store renamed, or the sale was a trick.)
⚠️ Bar Trap
Exam language: Examinees grant appraisal to any unhappy shareholder. Appraisal is forfeited unless the shareholder delivers written notice of intent to demand payment before the vote and refrains from voting in favor; a shareholder who votes for the transaction, or sits silent until after closing, has no appraisal remedy.
ELI-10: The fair-cash exit door only opens for people who raised their hand before the vote and never said yes. Vote yes, or stay quiet too long, and the door stays shut.
🧪 Question
Maple Foods Corp., a closely held corporation, agreed to merge into Harvest Holdings. The Maple Foods board adopted the plan and mailed shareholders notice of a meeting to vote on it, including a description of appraisal rights. Hana, a 6% shareholder, attended the meeting and voted her shares in favor of the merger, believing the price adequate. Two weeks after the merger closed, Hana learned of a higher rival bid that the board had disclosed in the meeting materials, decided the deal undervalued her shares, and delivered a written demand for payment of fair value.
Is Hana entitled to appraisal?
(A) Yes, because a merger is a fundamental change triggering appraisal rights for all shareholders. (B) Yes, because her shares were not publicly traded, so no market-out applies. (C) No, because she voted in favor of the merger and gave no pre-vote notice of intent to demand payment. (D) No, because appraisal rights are available only in short-form mergers.
Answer: (C). Appraisal requires strict compliance: written notice of intent to demand payment before the vote and no vote in favor. Hana did the opposite on both counts, so her post-closing regret comes too late regardless of the merger's price.
💡 Why the Wrong Answers Are Wrong
- (A) states the trigger but ignores perfection; eligibility for appraisal is lost when the procedural steps are skipped.
- (B) answers a question nobody asked; the absence of a market-out matters only for a shareholder who preserved the remedy.
- (D) inverts the rule; appraisal applies to long-form mergers too, and in short-form mergers it is the minority's principal remedy.
- ELI-10: The misconception is treating fair-cash buyout as a refund policy you can invoke after the deal. It's a hand you must raise before the vote.
