Corporations – Sale of Assets as a Means of Avoiding State Constitutional Limitation on Corporate Life
Defendant, a Michigan corporation, was incorporated in 1923 for a term of thirty years, the maximum term permitted by the Michigan constitution. Shortly before this thirty-year term was to expire, majority and minority stockholders engaged in unsuccessful negotiations, each group attempting to purchase the other’s interest in the corporation. A special stockholders’ meeting was then called to consider a proposed renewal of the corporate term. This proposal failed to gamer the vote of two-thirds of the outstanding shares which was required for approval. The attorneys representing the majority shareholders proceeded to organize a dummy corporation, which in tum offered the entire issue of its corporate stock to defendant corporation in consideration for all of the assets of defendant corporation. Defendant corporation, by a majority vote, accepted this offer. The newly acquired stock was distributed among the shareholders of defendant corporation, and thus the majority stockholders in effect caused defendant corporation to extend its corporate life for another thirty-year term. A request by the minority shareholders for an injunction prohibiting the sale of the entire assets of defendant corporation was dismissed by the circuit court. On appeal, held, affirmed. The acts of defendant corporation were constitutional and sanctioned by the Michigan General Corporation Act. Porter v. C.O. Porter Machinery Co., 336 Mich. 437, 58 N.W. (2d) 135 (1953).