10. Intercorporate relations thru sale of Two or more companies may fuse thru the purchase by one company of all of the operating assets of the others, paying in exchange therefor either cash or stock of the purchasing company. If cash is paid the vendors will probably wind up their affairs and distribute among the stockholders any surplus that is left after the payment of debts. If stock is paid it is likely that the vendors will dissolve by exchanging the sto& they receive film the sale of their assets for their own outstanding stock, thus making their stock holders members of the purchasing company.
11. Right to buy and sell assets.—In a great many states the general corporation laws make provision for the sale of assets by one company to another. These statutes, however, do not regulate the purchase of the assets of a corporation and it is generally con sidered that if the assets are necessary and can be used, no special statutory authority is necessary to purchase them. In the absence of statute, corpora tions have to fall back on the common law, the rules of which, tho somewhat complicated, are briefly sum marized in the two following sections.
12. Right of directors to sell corporate assets.— Directors have no inherent right to sell out a pros perous or even a losing concern but gcnerally they may make an assignment for the benefit of creditors of a company that is totally insolvent. The direc tors are the agents of the stockholders for the purpose of managing the company's affairs but are not au thorized to transfer the property to another concern, since such action would in effect, oust the stockholders from further interest in the operation of the corporate property. When, however, a company becomes in solvent the law regards its property as belonging pri marily to the creditors. The directors are justified in recognizing the creditors' primary interest by making an assignment.
13. Stockholders' rights to authorize sale.—If all the stock-holders agree they may sell the corporate property jointly' on any terms they decide upon, and, if it is not ultra vires for the company to hold stock, they may accept stock of the purchasing company in payment. If a prosperous concern wishes to dissolve, the property may be sold as a step toward dissolution by such a majority of the stockholders as is required by statute to authorize the dissolution of the company. In most states a two-thirds majority of the stock holders is necessary. When the further prosecution of the corporation's business would be unprofitable, it is not only the right but the duty of a majority to wind up the company's affairs by a sale of all its as sets. Public service corporations are ordinarily not
permitted to sell all of their assets without the con sent of the public service commission which has im mediate jurisdiction over their property and its op eration.
14. Effect of sale.—The effect of a sale of corpo rate property does not differ greatly from that of the sale of property between natural persons. In most states because such an operation has so frequently been used to defraud creditors the sale in bulk of all the assets of a going concern, whether owned by an individual, partnership or corporation, is presumed to be fraudulent and those interested in the sale must bear the burden of proving that it is not fraudulent. If the selling corporation receives adequate consid eration, whether in cash or in stock of the purchasing company, the corporate property will be transferred free from all claims except specific liens, such as mort gages. If the consideration is inadequate, creditors of the selling company may maintain an action to have the sale set aside as being a fraud on the credi tors.
15. Sale as a nieans of concentrating parts of an industry.—One advantage of the sale lies in the fact that it may include such operating assets as are neces sary to carry on a certain line of work, leaving the selling company with other operations that it wishes to continue. Thus in 1000 a number of gentlemen who had large interests in the tobacco industry wanted to consolidate the snuff business into one corporation. Several of them agreed to deliver to a proposed cor poration all the capital of the Atlantic Snuff Com pany or all its property "real and personal (and the property of all corporations owned or controlled by it), together with its or their good-will, business and trade-marks." Another group agreed to con vey only the "snuff business and good-will of the American Tobacco Company and Continental To bacco Company, together with all of the real and per sonal property" of those companies, "used by them or either of them, and pertaining to the snuff busi ness of them or of either of them, and the good-will and trade-marks of the snuff business of said com panies." A third group, in the same way, agreed to turn over the snuff business of the P. Lorillard Com pany. Here there was a fusion of one company with parts of three other companies.