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Texas Business Corporation Act Section 5.03 - Action On Plan Of Merger Or Exchange

Legal Research Home > Texas Laws > Business Corporation Act > Texas Business Corporation Act Section 5.03 - Action On Plan Of Merger Or Exchange




Art. 5.03. Action on Plan of Merger or Exchange                               



A. Except as provided by Sections G and H of this Article, after 

acting on a plan of merger or exchange in the manner prescribed by 

Subsection (1) of Section B of this Article, the board of directors 

of each domestic corporation that is a party to the merger, and the 

board of directors of each domestic corporation whose shares are to 

be acquired in the share exchange, shall submit the plan of merger 

or exchange for approval by its shareholders.  Unless the articles 

of incorporation otherwise require, no approval by shareholders of 

a plan of merger is required under this Article for any corporation 

that is a party to the plan of merger unless that corporation is 

also a party to the merger.



B. Except as provided by Sections G and H of this Article, for a plan 

of merger or exchange to be approved:



(1) the board of directors of the corporation shall adopt a 

resolution recommending that the plan of merger or exchange be 

approved by the shareholders of the corporation, unless the board 

of directors determines that for any reason it should not make that 

recommendation, in which case the board of directors shall adopt a 

resolution directing that the plan of merger or exchange be 

submitted to shareholders for approval without recommendation and, 

in connection with the submission, communicate the basis for its 

determination that the plan be submitted to shareholders without 

any recommendation;  and



(2) the shareholders entitled to vote on the plan of merger or 

exchange must approve the plan.



C. The board of directors may condition its submission to 

shareholders of a plan of merger or exchange on any basis.  If, 

after the adoption of a resolution recommending that the plan of 

merger or exchange be approved or after a determination by the board 

of directors that a recommendation should not be made, the board of 

directors determines that the plan of merger or exchange is not 

advisable, the plan of merger or exchange may be submitted to the 

shareholders with a recommendation that the shareholders not 

approve the plan of merger or exchange.



D. The corporation shall notify each shareholder, whether or not 

entitled to vote, of the meeting of shareholders at which the plan 

of merger or exchange is to be submitted for approval in accordance 

with Article 2.25 of this Act.  The notice shall be given at least 20 

days before the meeting and shall state that the purpose, or one of 

the purposes, of the meeting is to consider the plan of merger or 

exchange and shall contain or be accompanied by a copy or summary of 

the plan.



E. Unless the board of directors (acting pursuant to Section C of 

this Article) requires a greater vote or a vote by class or series, 

the vote of shareholders required for approval of a plan of merger 

or exchange shall be the affirmative vote of the holders of at least 

two-thirds of the outstanding shares of each corporation entitled 

to vote thereon, unless any class or series of shares of any such 

corporation is entitled to vote as a class thereon, in which event 

the vote required for approval by the shareholders of such 

corporation shall be the affirmative vote of the holders of at least 

two-thirds of the outstanding shares within each class or series of 

shares entitled to vote thereon as a class and at least two-thirds 

of the outstanding shares otherwise entitled to vote thereon.  

Shares entitled to vote as a class shall be entitled to vote only as 

a class unless otherwise entitled to vote on each matter submitted 

to the shareholders generally or provided in the articles of 

incorporation.



F. Separate voting by a class or series of shares of a corporation 

shall be required:



(1) for approval of a plan of merger if (a) the plan contains a 

provision that if contained in a proposed amendment to the articles 

of incorporation would require approval by that class or series of 

shares under Article 4.03 of this Act, or (b) that class or series 

of shares is entitled under the articles of incorporation to vote as 

a class thereon;  and



(2) on a plan of exchange if (a) shares of that class or series are 

to be exchanged pursuant to the terms of the plan, or (b) that class 

or series is entitled under the articles of incorporation to vote as 

a class thereon.



G. Unless the articles of incorporation otherwise require, approval 

by the shareholders of a corporation on a plan of merger shall not 

be required and the provisions of Sections A, B, C, D, E, and F of 

this Article do not apply if:



(1) the corporation is the sole surviving corporation in the 

merger;        



(2) the articles of incorporation of the corporation will not 

differ from its articles of incorporation before the merger;



(3) each shareholder of the corporation whose shares were 

outstanding immediately before the effective date of the merger 

will hold the same number of shares, with identical designations, 

preferences, limitations, and relative rights, immediately after 

the effective date of the merger;



(4) the voting power of the number of voting shares outstanding 

immediately after the merger, plus the voting power of the number of 

voting shares issuable as a result of the merger (either by the 

conversion of securities issued pursuant to the merger or the 

exercise of rights to purchase securities issued pursuant to the 

merger), will not exceed by more than 20 percent the voting power of 

the total number of voting shares of the corporation outstanding 

immediately before the merger;



(5) the number of participating shares outstanding immediately 

after the merger, plus the number of participating shares issuable 

as a result of the merger (either by the conversion of securities 

issued pursuant to the merger or the exercise of rights to purchase 

securities issued pursuant to the merger), will not exceed by more 

than 20 percent the total number of participating shares of the 

corporation outstanding immediately before the merger;  and



(6) the board of directors of the corporation adopts a resolution 

approving the plan of merger.



H. Unless the articles of incorporation otherwise require, approval 

by the shareholders of a corporation of a plan of merger shall not 

be required and Sections A, B, C, D, E, and F of this Article do not 

apply if:



(1) the merger is a merger of the corporation with or into a direct 

or indirect wholly owned subsidiary of the corporation and after 

the merger the corporation or its successor is a direct or indirect 

wholly owned subsidiary of a holding company;



(2) the corporation and the direct or indirect wholly owned 

subsidiary of the corporation are the only parties to the merger;



(3) each share or a fraction of a share of stock of the corporation 

outstanding immediately prior to the effectiveness of the merger is 

converted in the merger into a share or fraction of share of capital 

stock of the holding company having the same designations, 

preferences, limitations, and relative rights as a share of stock 

of the corporation being converted in the merger;



(4) the holding company and the corporation are domestic 

corporations and the direct or indirect wholly owned subsidiary 

that is the other party to the merger is a domestic corporation or 

domestic limited liability company;



(5) the articles of incorporation and bylaws of the holding company 

immediately following the effective time of the merger contain 

provisions identical to the articles of incorporation and bylaws of 

the corporation immediately prior to the effective time of the 

merger (other than provisions, if any, regarding the incorporator 

or incorporators, the corporate name, the registered office and 

agent, the initial board of directors, and the initial subscribers 

of shares and such provisions contained in any amendment to the 

certificate as were necessary to effect a change, exchange, 

reclassification, or cancellation of shares, if such change, 

exchange, reclassification, or cancellation has become effective);



(6) the organizational documents or corresponding documents of the 

surviving entity immediately following the effective time of the 

merger contain provisions identical to the organizational 

documents or corresponding documents of the corporation 

immediately prior to the effective time of the merger (other than 

provisions, if any, regarding the incorporator or incorporators, 

the corporate or entity name, the registered office and agent, the 

initial board of directors, and the initial subscribers of shares, 

references to members rather than shareholders, references to 

interests, units, or similar property rather than stock or shares, 

references to managers, managing members, or other members of the 

governing body rather than directors, and such provisions contained 

in any amendment to the certificate as were necessary to effect a 

change, exchange, reclassification, or cancellation of shares, if 

such change, exchange, reclassification, or cancellation has 

become effective);  provided, however, that:



(a) if the organizational documents of the surviving entity do not 

contain the following provisions, they shall be amended in the 

merger to contain provisions requiring that:



(i) any act or transaction by or involving a surviving entity, other 

than the election or removal of directors or managers, managing 

members, or other members of the governing body of the surviving 

entity, that requires for its approval under this Act or its 

organizational documents the approval of shareholders or members of 

the surviving entity shall, by specific reference to this section, 

require the approval of the shareholders of the holding company (or 

any successor by merger) by the same vote as is required by this Act 

or by the organizational documents of the surviving entity;



(ii) a surviving entity that is not a corporation obtain the 

approval of the shareholders of the holding company for any act or 

transaction by or involving the surviving entity, other than the 

election or removal of directors or managers, managing members, or 

other members of the governing body of the surviving entity, that 

would require the approval of the shareholders of the surviving 

entity if the surviving entity were a corporation subject to this 

Act;



(iii) any amendment of the organizational documents of a surviving 

entity that is not a corporation, that would, if adopted by a 

corporation subject to this Act, be required to be included in the 

articles of incorporation of the corporation, shall also require, 

by specific reference to this section, the approval of the 

shareholders of the holding company, or any successor by merger, by 

the same vote as is required by this Act or by the organizational 

documents of the surviving entity;  and



(iv) the business affairs of a surviving entity that is not a 

corporation shall be managed by or under the direction of a board of 

directors, board of managers, or other governing body consisting of 

individuals who are subject to the same fiduciary duties applicable 

to directors of a corporation subject to this Act, and who are 

liable for breach of the duties to the same extent as directors of a 

corporation subject to this Act;



(b) the organizational documents of the surviving entity may be 

amended in the merger to change the classes and series of shares and 

the number of shares that the surviving entity is authorized to 

issue;  and



(c) Subsection (6)(a) of this section or a provision of a surviving 

entity's organizational documents required by Subdivision (a) may 

not be construed as requiring approval of the shareholders of the 

holding company to elect or remove directors, managers, managing 

members, or other members of the governing body of the surviving 

entity;



(7) the directors of the corporation become or remain directors of 

the holding company on the effective time of the merger;



(8) the shareholders of the corporation will not recognize gain or 

loss for United States federal income tax purposes as determined by 

the board of directors of the corporation;  and



(9) the board of directors of the corporation adopts a resolution 

approving the plan of merger.



H-1. The term "organizational documents," as used in Section H(6) 

of this article, means:



(1) in reference to a corporation, the articles of incorporation of 

the corporation;  or



(2) in reference to a limited liability company, the limited 

liability company agreement of the limited liability company.



I. As used in this Article:                                                   



(1) "Direct or indirect wholly owned subsidiary" means, with 

respect to any corporation, another corporation, all of the 

outstanding voting stock of which is owned by the corporation or by 

one or more other domestic or foreign corporations or other 

entities, all of the outstanding voting stock or interests of which 

is owned by the corporation or one or more of such other wholly 

owned domestic or foreign corporations or other entities.



(2) "Holding company" means a corporation which, from its 

incorporation until the effectiveness of a merger pursuant to 

Section H of this Article, was at all times a direct or indirect 

wholly owned subsidiary of the corporation and whose stock is 

issued in the merger permitted by Section H of this Article.



(3) "Participating shares" means shares that entitle the holders 

thereof to participate without limitation in distributions.



(4) "Party to the merger" means:                                              



(a) a domestic corporation that is to be divided into two or more 

new domestic corporations or into a surviving corporation and one 

or more new domestic or foreign corporations or other entities 

pursuant to a plan of merger;  or



(b) a domestic or foreign corporation or other entity that is to be 

combined with one or more domestic or foreign corporations or other 

entities pursuant to a plan of merger resulting in (i) one or more 

surviving domestic or foreign corporations or other entities, (ii) 

the creation of one or more new domestic or foreign corporations or 

other entities, or (iii) one or more surviving domestic or foreign 

corporations or other entities and the creation of one or more new 

domestic or foreign corporations or other entities.  A domestic or 

foreign corporation or other entity that is a party to a plan of 

merger that is not to be divided or combined into or with one or more 

domestic or foreign corporations or other entities is not 

considered to be a party to the merger even if shares, securities, 

or other property of such party is to be issued pursuant to the plan 

of merger.



(5) "Voting shares" means shares that entitle the holders thereof 

to vote unconditionally in elections of directors.



(6) "Shares" means, without limitation, a receipt or other 

instrument issued by a depositary representing an interest in one 

or more shares of stock, or fractions thereof, solely of a domestic 

or foreign corporation, which stock is deposited with a depositary.



J. To the extent the provisions contained in Part Thirteen of this 

Act apply to the corporation and its shareholders at the effective 

time of a merger pursuant to Section H of this Article, those 

provisions shall continue to apply to the holding company and its 

shareholders immediately after the effective time of the merger as 

though it were the corporation, and all shares of the holding 

company acquired in the merger shall, for purposes of Part 

Thirteen, be deemed to have been acquired at the time that the 

shares of stock of the corporation converted in the merger were 

acquired, and any shareholder who, immediately prior to the 

effective time of the merger, was not an affiliated shareholder 

within the meaning of Article 13.02 of this Act shall not solely by 

reason of the merger become an affiliated shareholder of the 

holding company.



K. If the corporate name of a holding company immediately following 

the effective time of a merger pursuant to Section H of this Article 

is the same as the corporate name of the corporation immediately 

prior to the effective time of the merger, the shares of the holding 

company into which the shares of the corporation are converted in 

the merger shall be represented by the stock certificates that 

previously represented the shares of the corporation.



L.  After a merger or share exchange is approved, and at any time 

before the merger or share exchange has become effective, the plan 

of merger or share exchange may be abandoned (subject to any 

contractual rights) by any of the corporations that are a party to 

the merger, without shareholder action, in accordance with the 

procedures set forth in the plan of merger or exchange or, if no 

such procedures are set forth in the plan, in the manner determined 

by the board of directors.  If articles of merger or exchange have 

been filed with the Secretary of State but the merger or share 

exchange has not yet become effective, the merger or share exchange 

may be abandoned if a statement, executed on behalf of each domestic 

corporation and foreign corporation or other entity that is a party 

to the merger or share exchange by an officer or other duly 

authorized representative, stating that the plan of merger or 

exchange has been abandoned in accordance with applicable law is 

filed with the Secretary of State prior to the effectiveness of the 

merger or share exchange.  If the Secretary of State finds that such 

statement conforms to law, he shall, when all fees have been paid as 

required by law:



(1) Endorse on the original and each copy the word "Filed" and the 

month, day, and year the filing thereof.



(2) File the original in his office.                                          



(3) Issue a certificate of abandonment to each domestic or foreign 

corporation or other entity that is a party to the merger or 

exchange.



Upon the filing of such statement by the Secretary of State, the 

merger or share exchange shall be deemed abandoned and shall not 

become effective.



M. To the extent a shareholder of a corporation has standing to 

institute or maintain derivative litigation on behalf of the 

corporation immediately before a merger, nothing in this article 

may be construed to limit or extinguish the shareholder's standing.



Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955.  Amended by 

Acts 1967, 60th Leg., p. 1720, ch. 657, Sec. 9, eff. June 17, 1967;  

Acts 1989, 71st Leg., ch. 801, Sec. 28, eff. Aug. 28, 1989;  Acts 

1991, 72nd Leg., ch. 901, Sec. 27, eff. Aug. 26, 1991;  Acts 1993, 

73rd Leg., ch. 215, Sec. 2.13, eff. Sept. 1, 1993;  Acts 1997, 75th 

Leg., ch. 375, Sec. 26, eff. Sept. 1, 1997.



Sec. C amended by Acts 2003, 78th Leg., ch. 238, Sec. 29, eff. Sept. 

1, 2003;  Sec. H amended by Acts 2003, 78th Leg., ch. 238, Sec. 29, 

eff. Sept. 1, 2003;  Sec. H-1 added by Acts 2003, 78th Leg., ch. 238, 

Sec. 29, eff. Sept. 1, 2003;  Sec. M added by Acts 2003, 78th Leg., 

ch. 238, Sec. 29, eff. Sept. 1, 2003.











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Last modified: March 11, 2007