Area of Law: Business Law
Answer # 0245
Sale of a public corporationRegion: Ontario Answer # 0245
The two most common ways public corporations can be bought and sold are through a plan of arrangement, or a take-over bid.
Plan of arrangement
In a plan of arrangement, shareholders vote at a special meeting to approve negotiations by the corporation’s board of directors for the sale of the company. The transaction that is being negotiated is often known as an arrangement. The vote is subject to the laws that govern incorporation and securities in the province the corporation resides in.
For instance, a provincial Securities Act will stipulate:
- how many shareholders must approve the arrangement in order for it to go ahead. In most provinces and territories, this is 66 2/3% of the shareholders;
- that a prospectus is required, what it must contain and how it must be delivered;
- when and how proxies may be used in the vote;
- if and how advertising the sale can be conducted, such as online, in newspapers, or on radio and TV.
Once the required number of shareholders has approved the arrangement, the corporation being sold must then also get court approval by obtaining a court order.
In a take-over bid, the buyer makes a direct offer to the company’s shareholders to acquire their shares, or equity securities (another company’s shares). While the board of directors has a duty to consider the offer and make recommendations to the shareholders regarding the offer, their support is not legally required. The offer is accepted or rejected by the shareholders.
A take-over bid most often occurs where transactions are hostile, as opposed to where both parties in the transaction are in agreement from the start of negotiations.
Provincial securities laws also regulate the governing rules and principles (including restrictions) in a take-over bid, such as:
- disclosure requirements, such as who is making the offer, and the company being targeted for take-over;
- the timing and delivery of take-over bid materials, such as laws requiring that a take-over bid begin by an advertisement being published in at least one major daily newspaper in each province;
- requirements on how long the bid may remain open, and how long the targeted company has to respond;
- the minimum bid (or tender) requirements; and
- rules that ensure all shareholders are treated equally.
Take-over bids are complex. It is advisable to seek the advice and assistance of a lawyer.
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