Completing A Name Change Without Shareholder Approval

Guest Post by Laura Anthony, Esq – Legal & Compliance, LLC

Generally a name change is completed through an amendment to a company’s articles of incorporation.  Moreover, amendments to articles of incorporation generally require shareholder consent, which can be time-consuming and expensive and become even more so if the company is subject to the reporting requirements of the Securities Exchange Act of 1934.

All companies with securities registered under the Securities Exchange Act of 1934, as amended, (i.e., through the filing of a Form 10 or Form 8-A) are subject to the Exchange Act proxy requirements found in Section 14 and the rules promulgated thereunder.  The proxy rules govern the disclosure in materials used to solicit shareholders’ votes in annual or special meetings held for the approval of any corporate action requiring shareholder approval.  The information contained in proxy materials must be filed with the SEC in advance of any solicitation to ensure compliance with the disclosure rules.

Solicitations, whether by management or shareholder groups, must disclose all important facts concerning the issues on which shareholders are asked to vote.  The disclosure information filed with the SEC and ultimately provided to the shareholders is enumerated in SEC Schedule 14A.

Where a shareholder vote is not being solicited, such as when a company has obtained shareholder approval through written consent in lieu of a meeting, a company may satisfy its Section 14 requirements by filing an information statement with the SEC and mailing such statement to its shareholders.  In this case, the disclosure information filed with the SEC and mailed to shareholders is enumerated in SEC Schedule 14C.  As with the proxy solicitation materials filed in Schedule 14A, a Schedule 14C Information Statement must be filed in advance of final mailing to the shareholder and is reviewed by the SEC to ensure that all important facts are disclosed.  However, Schedule 14C does not solicit or request shareholder approval (or any other action, for that matter), but rather informs shareholders of an approval already obtained and corporate actions which are imminent.

In either case, a preliminary Schedule 14A or 14C is filed with the SEC, who then reviews and comments on the filing.  Upon clearing comments, a definitive Schedule 14A or 14C is filed and mailed to the shareholders as of a certain record date.

However, there is another option.

Using a Subsidiary to Effectuate a Name Change

Many states, including Delaware and Nevada, have provisions whereby a company can establish a new wholly owned subsidiary, which subsidiary is named with the desired new company name, and then complete a short-form parent subsidiary merger, whereby the parent is the surviving entity but concurrently adopts the name of the merged in subsidiary.  The entire process can be completed with board of director approval and no shareholder consent is necessary.

The company will still be required to obtain a new CUSIP number and provide FINRA with notification of the corporate action.  FINRA is the entity that processes the name change such that the company’s quotation on OTC markets will be updated with the new name.  The company may also request a voluntary symbol change at the same time.

To break it down again in simple terms, an entity that desires to complete a name change without the expense, time and process of holding a shareholder meeting or obtaining shareholder consent and complying with the SEC proxy rules and state shareholder notice requirements, can do so as follows:

  • Obtain board of directors approval to form a new wholly owned subsidiary and complete the name change process through a short-form parent subsidiary merger;
  • Form a new subsidiary, which subsidiary is named with the desired new name of the parent entity;
  • File short-form merger documents with the state whereby the parent entity is the surviving entity and such parent adopts the subsidiary name as part of the merger process;
  • Obtain a new CUSIP number;
  • Notify FINRA of the corporate action at least 10 days prior to the desired effective date; and,
  • For a company subject to the reporting requirements of the Securities Exchange Act of 1934, file a Form 8-K disclosing the name change.

The Delaware and Nevada Specific State Law Provisions

As Delaware and Nevada are the most common states of incorporation for public entities, below are the corporate law provisions for these states that allow for the name change process without shareholder consent.  Many states have similar statutory provisions.

Nevada

Nevada Revised Statutes (NRS) 92A.180 allows for the merger of a subsidiary into a parent or parent into a subsidiary without shareholder approval.  An entity may only avail itself of the provisions of 92A.180 if the parent owns at least 90% of the subsidiary.  NRS 92A.180 provides in pertinent part: “Articles of merger under this section may not contain amendments to the constituent documents of the surviving entity except that the name of the surviving entity may be changed.”

Delaware

Delaware General Corporation Law (DGCL) Section 251 allows for the merger of a subsidiary into a parent or parent into a subsidiary without shareholder approval.   An entity may only avail itself of the provisions of DGCL 251 if the parent owns at least 80% of the subsidiary.  DGCL 251 provides in pertinent part: “…the certificate of incorporation and bylaws of the holding company immediately following the effective time of the merger contain provisions identical to the certificate of incorporation and bylaws of the constituent corporation immediately prior to the effective time of the merger (other than provisions, if any regarding… the corporate name…)…”


The Author

Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
LAnthony@LegalAndCompliance.com

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