The Problem of the Non-Exhanging Shareholder

Abstract

T HERE have been innumerable cases of corporate mergers, consolidations, and reorganizations requiring the holders of shares of predecessor corporations to exchange their certificates for ones of the successor or surviving corporation.' Most merger, consolidation, and reorganization agreements stipulate how the exchanges are to be accomplished, but many do not state how much time the shareholder has in which to make the exchange or what happens if no exchange is made. As a result, many corporations are forced to spend significant sums of money each year on these "lost" or "non-exchanging" shareholders, 2 maintaining records, paying transfer agents, sending out notices of meetings, and attempting to persuade such shareholders to exchange their shares and collect dividends that have accumulated. Problems are also likely to be found when the successor corporation wishes to merge or consolidate. Successor corporations, therefore, may have to spend substantial amounts on legal fees in attempts to determine how they can resolve problems concerning the non-exchanging shareholders.

Despite the continuing and obvious need for a solution, the problem has remained largely unsolved. This article will present the alternative approaches and problems that exist under present law, and offer a possible solution. Special attention will be paid to the relevant law of Delaware and New York, although cases addressing the problem of the non-exchanging shareholder in other jurisdictions will be considered.

Keywords: exchanging certificates, exchanging shares, exchanging stock, dissenting shareholders