Although California’s General Corporation Law is frequently criticized as overly restrictive, it does have one virtue. It is rationally organized. Thus, it begins with a long series of defined terms, starting with “acknowledged” and ending with “written”. It even provides a definition of “short-form merger”. Cal. Corp. Code § 187.
In California, a short-form merger may either be “upstream” (a merger of the subsidiary into the parent) or “downstream” (a merger of the parent into the subsidiary). Cal. Corp. Code § 1110(a). A short-form merger is only possible if the parent owns at least 90% of the outstanding shares of each class of the subsidiary to be merged. If the parent owns less than all of the outstanding shares, then the board of directors of the subsidiary must also approve the merger. Cal. Corp. Code § 1110(b). In approving the merger, these directors remain subject to their fiduciary duties as directors.
The principal benefit associated with the short-form merger procedure is the lack of any requirement to obtain the approval of the outstanding shares (except in the case of a downstream merger pursuant to Section 1110(c)). However, California does require notice to shareholders when the subsidiary is a domestic corporation and not wholly-owned by the parent. In these cases, the parent corporation must give notice at least 20 days notice before the effective date to the subsidiary’s shareholders that the merger will become effective. Cal. Corp. Code § 1110(h). The notice must contain a copy of the resolution or plan of merger and information concerning dissenters’ rights. The alleged failure to give this notice has engendered litigation. Meadows v. Bicrodyne Corp., 573 F. Supp. 1030 (N.D. Cal. 1983) (finding that the corporation had discharged its obligation to provide notice).