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Companylaw:fundamentalchangesina company
Reading1:IntroductiontochangesincompaniesThistextprovidesanoverviewoftheareaofcompanylawdealingwiththechangesmadetoacompanythatgenerallyrequiretheinvolvementof
lawyers.
1 Before you read the text, matchthese keyterms (1-7), which all
refer to types
of changes in companystructure,with their definitions (a-g). If
necessary,consult the glossary.
1 constitutionalamendment2 consolidation
3 acquisition of controllingshares4 voluntaryliquidation5
merger6 sale of substantiallyall assets
7 compulsorywinding-up
a the liquidationof a companyafter a petition to the court,
usually by acreditor
b the combiningof two companies to form an entirelynew
company
c liquidationproceedingsthat are supported by a
company'sshareholdersd a change in a company'sname,capital or
objectse the purchase of shares owned by shareholders who have a
controlling
interest
f the acquisition of one companyby another,resulting in the
survival of one ofthem and dissolution of the other
g a form of acquisition wherebyall or almost all assets and
liabilities of acompanyare sold
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Atsome a , -the company.Some of these changes may merelybe
basically administrative,such as changingthe company'sname.
Otherchanges mayentail alteration of the company'sstructure.
Thesechanges sometimes place the rights of creditors and minority
shareholders at risk and are thus
subject to special statutory regulation.The in examples of t pe
alter~tions.~hjchf~11., c. . "" ',''''r' .". .:,eo, . '",\~.'.'.
".f:'"". "f'Into this group are constltutloli'alamendm ,
mergers,cons tlO ale'ptsubstantiallyall ,assets,acquisitionof
controllingsharesandliquidation.
Themostcommonconstitutionalalterationsin a
companyIncludealterationof thecompany'sname,capital or objects. to
English law,a chan of name canberesolutionin anameof
thecompanybechangedto the newname.A signedcopyof the
resolutioncontainingthenewnamemustthenbesubmittedto the
RegistrarofCompanies.Ifthesubmissionis inorder,CompaniesHousewill
issuea Certificateof
IncorporationonChangeofName.Acompanymayalterits
caDitalstructure.Dmvidedthat arpower.Suchan
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1 (US) tender offer
2 (US) involuntarybankruptcy
3 (US) also dissolution or winding-up
.* pp n in2 Thetextcontains several pairs of opposing concepts.
Find the counterpart of
each of these words.
1 acquiringcompany2 hostile takeover
3 acquirer
4 compulsorywinding-up5 solvent
3 Work in pairs. Making use of the prepositions introduced in
the previous unit
(as opposed to, unlike, in contrast to), take turns
contrastingthe pairs ofopposing concepts listed in Exercise 2.
EXAMPLES: 11'1coY\tr
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ning 1:.on
ning
A
lawyer'sinvolvementinthemergersandacquisitionsofcompaniesoftenentailscommunicatingwiththepartiesconcerned:a
lawyermayexplaintotheownerofacompanywhatprocedureshavetobecompletedinthecourseofanacquisitionorinformshareholdershowthechangesresultingfroma
mergerwillaffectthem.
Inthefollowinglisteningexercise,youwill heara lawyerspeakingtoa
groupofbusinessowners.Eachofthesebusinessownersis
consideringacquiringanotherbusiness.
4 ~~Listento thefirstpartof the
presentationandchoosethecorrectanswerto eachof thesequestions.
1 Which of these is the most likelyentry for the talk in the
programme?
a Mr A. Crawfordof Corporate Restructuring(eveningsession)b Mr
A. Cranfordof Mergers and Acquisitions (eveningsession)c Mr A.
Crawfordof Mergers and Acquistions (eveningsession)d Mr A.
Crawfordof Mergers and Acquisitions (morningsession)
2 What is the speaker's aim?
a to providethe business owners with an overviewof the law of
mergersand acquisitions
b to persuade the business owners that they should use this
opportunityfortheir businesses to grow
c to informthe business owners what they can expect if they
decide tocarry out an acquisition
d to tell the business owners about the process of makingtheir
businessesmore attractiveas potentialtargets
3 Which of the followingtopics will not be included in the
presentation?a factors involvedin deciding on a companyto acquireb
staffing issues after an acquisition
c evaluatingthe prospectiveacquired companyd details of one
specific deal the speaker has carried out
5 ~~Listen to the second part of the presentation, in which the
speakerdiscusses legal aspects of acquisitions. Decide whether
these statements aretrue or false.
1 The important legal steps that must be carried out in the
course of the
acquisition process can be completed in any sequence.
2 'Due diligence' refers to the process of gatheringand
analysing financialinformationand other relevantinformationabout a
business before it isacquired.
3 One aspect of due diligence is verifyingownership of
intellectual property.4 In the course of due diligence,the acquirer
should terminate all of the target
company'scontracts with suppliers.
5 A warrantyis written statement by a partyattesting that a fact
relevanttothe deal is true.
6 The target mayprovideindemnitiesto protectthe acquirer against
futureliabilities.
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.. . .InnIng p
nInListening1,thelawyerbeganhispresentationbyintroducinghimselfandhistopic.Followingthis,heprovidedanoverviewofthepointsheplannedtocover.Healsoinformedhislistenersaboutgeneralmattersrelatedtohispresentation,suchaswhethertherewouldbea
breakorif questionswerepermitted.
Thebeginningpartofanypresentation,whethershortorlong,informalorformal,shouldfulfilthesefunctions.Listenersappreciateknowingwhatawaitsthemandwhattheycanexpecttohear.
6 .. ~The following list provides useful phrases for the
beginningof a
presentation. Listen to the first part of the presentationagain
and completeeach of the phrases using no more than three words.
1 Someof youmayknowmealready,butallowme.My name's Adrian
Crawford.
2 Mergers and Acquisitions department of our firm.3 I'll
acquisitions this evening.4 I'm you about...5 Please feel free to
at anytime, should you have any
questions.
6 At this point, I'd like to give you a short
mypresentation.
7 I'm going to start with a how to ...8 Then I'll . the issue of
...9 After that, I'll the process of ...
10 I think we'll. w a short break at that point.11 After the
break, I'll the legal aspects...12 At the end, I'll a look at ...13
There'll be time for at the end.
..........
7 Matchthe phrasesfromExercise6 (1-13) with the function (a-c)
they serve.The first phrase has been done for you.
a introducingthe speaker (name, affiliation) 1, ...b
informingabout points that will be covered
c telling listeners about practical matters related to the
presentation
ng 2:
in-Thetextonpage52isanexcerptfromanarticleaboutspin-offs,analterationinthestructureofa
company.ItappearedonthewebsiteofaUSfirm.Theprimarypurposeofthistextistoprovideinformationforclients.Doyouthinkwebsitearticlesareaneffectivewayforclientstogetinformationaboutcomplextopics?
8 Readthroughthetextquicklyandanswerthis question.
A subsidiary is a companywhich is controlled by another
throughshareownership. What exactlyis a spin-off?
9 Decide which of these phrases (a-d) best expresses the topic
of each
paragraph(1-4).
a Advantagesof IRS Code Section 355
b Reasons for creating spin-offsc Definition of the term
spin-offd Various types of spin-offs
Unit4 Companylaw:fundamentalchangesin a company
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1 The term 'spin-off' refers to any distribution by a
corporation to itsshareholders of one of its two or more
businesses. Sometimes the
spun-off business is transferred first to a newly formed
subsidiarycorporation. The stock of that subsidiary is then
distributed to the
shareholders of the distributing corporation. Other times, the
stock ofa pre-existing subsidiary is distributed.
2 Spin-offs can include distributions on a proportional basis
(i.e. pro
rata),in which the receiving shareholders do not give up any of
their
stock in the distributing corporation when they receive the
spun-offstock. Sometimes the distribution only goes to certain
shareholders. In
this case, the receiving shareholders give up some (or aiDof
their
stock in the distributing corporation in exchange for the stock
of the
controlled subsidiary. Non-pro-rata spin-offs are sometimes
referred to
as 'split-offs'.A non-pro-rata spin-off that results in one
group of
shareholders holding all the stock of the distributing
corporation and a
second group holding all the stock of the former
subsidiarycorporation is referred to as a 'split-up'.
3 A spin-off is used to separate two businesses that have
become
incompatible. In a case where investors and lenders may want
to
provide capital to one but not all business operations, a
spin-off canbe a good solution. Spin-offs are also used to separate
businesses
where owner-managers have different philosophies. Spin-offs
mayfurthermore be used by publicly held companies when the
stock
market would value the separate parts more highly than
combined
operations. The separation of business operations could also
lead to agreater entrepreneurial drive for success.
4 The tax characteristics of a qualifying spin-off under
Internal Revenue
Code Section 355 make this an attractivetool for solving
certain
corporate challenges. Without Section 355, the distributing
corporation would have to recognize a gain on the stock it
distributed
as if it had sold that stock. In addition, shareholders
receiving thedistribution would be taxed on the shares received,
either as a
dividend or as capital gain. This double tax usually makes
spin-offs
extremely expensive. Code Section 355 permits a spin-off to
be
accomplished without tax to either the distributing corporation
or to
the receiving shareholder. Any gain realized by the shareholder
isdeferred until the stock is sold.
10 Read the text again and answer these questions.
1 Underwhich circumstances would a companytypicallydecide to
make aspin-off?
2 What benefits for the corporationand for the shareholders
result fromInternal RevenueCode Section 355?
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ng: ng n-Oneofyourcorporateclientsis
planningtocarryoutaspin-off.Hehaswrittenyouthefollowingemail.
Dear Mr Daniels
Ms Diaz has told methat you are goingto be at the
shareholders'meetingnextWednesday.Would you mindaddressingthe
groupbriefly beforethe meetingstarts? I thinkthey would
appreciatesome basic informationaboutthings like what a spin-off
is, whythespin-off will be done,etc. just so theycan understandthe
rationalebehind it better.Of course, it's very importantthatthey
realise thatthe spin-off will notaffect them negatively.I think
10-15minuteswill beenoughfor this, andthen youand I could field
theirquestions andtry to clear up anymisunderstandings.
Please let meknowwhatyouthink.
Best wishes
Adam Tyler
11 Using the presentation in Listening 1 as a model and the
informationfrom
Reading 2, preparethe beginningof such a presentation.
12 Taketurns presentingyour beginningto a partner.Check that
your partner has:
0 introducedhim/herself0 informedyou about what points will be
covered0 mentionedany practical matters (questions, timing,
etc.)
ning 2:
chLawyersplayanimportantroleintheprocessesinvolvedinalteringthestructureofacompany.Forexample,theyreviewthedocumentsconnectedwithsuchchangestoensurethatall
therelevantstatuteshavebeencompliedwith.
Checklistsareusefultoolsformakingsurethattheproperprocedureshavebeenfollowedandthenecessarydocumentsdrawnup.Onceanissuehasbeenaddressed,a
lawyerwillticktheboxtoconfirmthathehasconsideredtheparticularmatterlisted.Youwill
heartwolawyersdiscussingsuchachecklist.A
moreexperiencedlawyerguideshisyoungercolleaguethroughthelistofactionstobetakenanddocumentstobefiled.
13 .. ~ Listen to the dialogue and answer these questions.
1 What kind of change are they discussing?
2 What two meetings need to be held?3 How manydocuments need to
be filed at Companies House?
Unit4 Companylaw:fundamentalchangesinacompany
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14 .. ~Listen again and complete the missing items (1-10) in the
left-handcolumn of the checklist, using up to three words for each
space.
0
Checkliston increasinga company'ssharecapital
Maftercol1sidered
. Checkthememorandumof
associationtoideQtifythecompany's1)........................ .
Seealsoauthoritytoincreasecapitaltirid(\rArticles.Considerwhethercreationof
newshareswill involvevariationofclassrights.If
so,appropriateconsentsmayberequired.
. Has the company issued all its sharecapital?
. 2). "'" of increaseof sharecapital.
. Convene 3) ........................
atreasonablenotice:Normalprocedureor
considerusingwrittenresolutionprocedure.
. Ensureaquorumof 4) . .... . ispresentattheboardmeeting.
. Directorshaveto5) ....................... thattheywill
puttheincreaseof sharecapitalto
voteatanextraordinarygeneralmeeting(EGM).
. ConveneanEGM by noticeor usewrittenresolutionprocedure.
. If written resolution procedure is not used, notice to
shareholdersmuststate:a dateb time
c placed proxye ordinaryresolutionf consentto6) .... ..........
..........
. EQsurethe 7) .......................... presidesattheEGM
andthataquorumofshareholdersispresent.
. Passtheordinaryresolutionby 8) .... ...... "'"
onashowofbMdsorbypoll.
. boardandEGMminutes.
. LodgeatCompallies.Hotise9) . .............. .............
days:a ordiIlarY'tesoI1.lti.oll;
b noticeof illc:reaseof 10)""'''''''''''''''' ....,...
(Form123);c amendedmemorandtitnand ,y)articlesof
association.
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9 e 1: ning p
Whenexplaininghowa procedureis carriedout,the orderof thestepsto
betakencanbe indicatedusingsequencingwords.Lookat
thefollowingexamplesfromthe listeningtext:
Well,thefirst thingyouhaveto do is
checkthememorandumofassociationThenyouhaveto
findoutwhetherthey'veissuedall theirsharecapitalalreadyor
not.Thenextstep wouldbe todeterminetheamountof increaseof
sharecapital.ButbeforetheEGMcantakeplace,theshareholders to be
informedbynoticeabouttheFinally,wit!Companies
Hereare
After
Subsequently
Another
necessary:
andit'snecessarythata
15 Think about a complicated legal procedureyou have to deal
with in the course
of your work or which you have studied. Make a checklist to
identifywhat youhave to do to complete this procedure. Explainthe
procedurecarefullyto your
partner.He/She should make notes. When you have finished, ask
your partnerto repeat back to you the stages of the procedure.
ng3: e ngWhenfundamentalchangesare madeto a company,meetingsof
the directorsand/orshareholdersmustbe convenedsothat the
proposedchangescanbevotedon.The
official recordof the proceedingsof sucha meetingis calledthe
minutes.
16 Discuss these questions.
1 Who writes the minutes of a meeting?2 When would a
lawyerhaveto read such a text?
17 The text on page 56 is the minutes of a meeting held by board
members of a
small company.Read through the minutes quickly.Whywas the board
meetingcalled? Whywas the EGM called?
Unit4 Companylaw:fundamentalchangesin a companyE
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Longfellow LtdMinutes of a meeting of the Board of Directors
he.ld at COI11Petnypr~t!;ii$~$,Langdon Building, Sherwood Road,
Manchester
On:
Present:10 September,2005, at 3 p.m.
Debra Smith (Chairperson)
Anna Bean (Director)
ClaireThurman (Secretary)
1 The Chairperson confirmed that noticeof the meetinghad been
givento altthe DirectorsCompany and that a quorum of the Board of
Directorswas presentat the meetiog.
2 Applicationswere presentedto the meetingfrom Debra Smith, Anna
Bean and Allison 8cf'iarpfor theallotmentof 10,000, 20,000 and
20,000 shares respectivelyby the Company, and it was resolvedthat
theirapplicationsbe approved subject to the approval of the
extraordinarygeneralmeeting.
3 Itwas noted that Debra Smith and Anna Bean had declared their
interestsin the shares pursuant tos317 Companies Act 1985.
4 The Chairperson reportedthat it was proposed to increasethe
authorised share capital of theCompany by 50,000.
5 The Chairperson reportedthat the directors requiredauthorityto
allotshares, as therewas nopower in the Company's articlesof
association.
6 The Chairperson also informedthe members that the Company
would need to disapply s89Companies Act 1985 in relationto
pre-emptionrights.
7 There was presentedto the meetinga notice of an
extraordinarygeneralmeetingat whichresolutionswould be proposed to
implementthe above proposals to increasethe Company's
sharecapital;to authorisedirectors to allot the new shares; and to
disapplythe requirementsof s89Companies Act 1985. It was
resolvedthat the notice be approved, that the Secretarybe
instructedto send it to all the members and the auditors of the
Company, and, subject to all the membersagreeingto short notice,
that the meetingbe held immediately.
8 The meetingwas adjourned to enable the
extraordinarygeneralmeetingto be held.
9 The meetingresumed at 8 p.m. and the Chairperson reportedthat
the resolutionsset out in thenotice of an EGM had been duly
passed.
10 Itwas resolvedthatthe applicationby Debra Smith, Anna Bean
and Allison Sharp for 10,000,20,000 and 20,000 shares
respectivelybe accepted and that the capital of the Company
beallottedto the applicantson the terms of the application.
11 The Secretarywas instructedto enter the names of the
applicants in the registerof members of theCornpany as the
f'ioldersof the shares allotted.
12 1"heSecretarywas [nstructedto prepareshare certificatesin
respect of the shares allottedand toarrangefOrthe common seal to be
affixedto th.ernand to deliverthe share certificatesto
theapplicants.
13 and filewith theRegistrar of Companies: Form 88(2)3trnade;
Form 123 (increaseof capital);andWithraisingcapital for the
Company.
Was closed.
Chairperson
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18 Read the minutes again and answer these questions.
1 Which resolutions were passed at the meeting?2 What steps must
be undertakenbythe Secretarysubsequent to the meeting?
19 As a record of what occurred at a meeting,the minutes include
an account of
what the participants said. Verbs referring to speech acts, such
as to stateorto propose, are commonlyused. Which verbs of this kind
can be found in theminutes?
e 2: 020 The minutes on page 56 contain examples of verbs that
often appear together
with the nouns meetingand resolution. Find and underline
them.
21 Complete the table below to show which of the verbs in the
box can be used
with meetingand resolution. You may need to consult a
dictionary.
adopt arrange attend authorisedraft endorse introduce
opposeschedule summon table
call cancel convene
pass preside at
meeting resolution
n9 .. h ho r 9Theletteron
page58hasbeenwrittenbyanAmericanlawyerin responseto a
queryconcerningthe rightsof a shareholder.
22 Read the letter and discuss these questions.
1 What kind of letter is it?
2 What exactly is the query it responds to?
23 Read the letter again and decide whether these statements are
true or false.
1 The shareholder seeks to set aside the transaction on the
grounds that hewas not able to vote at the shareholders
meeting.
2 The lawyerstates that in a true merger,the statutes do not
provideappraisal
rights to the shareholder.3 The lawyerpoints out that looking at
the substance ratherthan the form of
the transaction mightappear at first to help the shareholder's
case.4 The lawyerbelieves that it is likelythat the courts in the
jurisdiction in
question will decide along the lines of Heil v. Star
Chemical.
Unit4 Companylaw:fundamentalchangesin a company
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24 Match these words and phrases from the letter (1-5) with
their synonyms(a-e).The words are in italics in the letter.
1 instant
2 in essence
3 persuasive4 hesitant
5 mere
a basicallyb simplec reluctant
d convincinge present
25 Accordingto the letter of advice on page 58, there is a good
reason whya courtmight rule in favour of the shareholder,but also a
good reason why it would not.Discuss these reasons with a partner
and decide how you would advise yourclient in this situation.
r 0 ning
Referring to previous contactWithreference to your letter of 15
February...In responseFurther to
ThankYOL
Stating the reason for writingI am writing to informyou
that...
Closing, offering further assistancePlease contact me again if I
can help in any way.
Should you have any further questions, do nothesitate to contact
me.
Referring to future contact
I look forward to your reply/ to meetingyou / to
26 The letter of advice on page 58 has been written in response
to a query.
1 How does the lawyermake referenceto this query?2 How is the
previous conversationbetween lawyerand client referredto?3 At the
end of the letter,which sentences are used to indicatewillingness
to
providefurther help and to invitefurther contact?
27 As the associate for corporate counsel to LongfellowLtd, you
have receivedanSAMP
:mE email from a shareholder requesting informationabout what
happened at the~NSWER
p.288 board meetingand the EGM documented in the minutes in
Reading 3 on page56. Respondto the requestof theshareholder.In
youremail,youshould:0 refer to the email sent bythe shareholder;0
state the reason for writing;0 explain the circumstances under
which the meetings were held;0 summarise the content of the
resolutions passed;0 offer to providefurther assistance if
necessary.
D'I~\ Unit 4
To improveyourweb-based research skills, visit
www.cambridge.orgjeltjlegalenglish.click onResearch Tasks and
choose Task 4.
Unit4 Companylaw:fundamentalchangesin a company
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Vocabulary:You mayneed to
1 pause suspend
2 accordingto related to3 exempt liable freed4 convoke call
contend5 continue resume6 said relevant
convene
Vocabulary: definitions Match thesetheir definitions (a-h).
1 pro-ratadistribution2 under Internal Revenue
3 prior to distribution
4 become a party to a transaction
5 no consideration is paid6 de facto merger7
applicablestatutes
8 provisionsgoverningmerger
Word formation Complete this table by fillingUnderlinethe
stressed syllable word
Verb ! Abstract noun
dis!ijbute,distribute d1,stribtion
merger
regulation
submit
approval
consolidate
acquire
liquidation
cancel
alteration
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using the
complywith dispose of enter into lodge at preside at
12 the EGM.3
4 respectof
a definitive
EXAMPLE: wY\ve,\l\e,
convenereduce
passfollow resolution
each of the
Vocabulary: antonyms Match these words (1-8) opposites
(a-h).
12 asset3 hostile
4 oppose
5 purchase6
7 newlyformed8 dissolution
a
b
c pre-existingd approve
e voluntaryf liability
sale