What are some options for a business looking to reorganize and regroup?
In August, 2015, Google, Inc. announced a drastic reorganization plan in which it planned to focus more intently on its original business endeavor: search engines. Over the past several years, Google has dabbled in everything from driverless cars to medical research – and sources have suggested that its investors have grown weary of the growing list of “distractions.” Accordingly, Google used the unique Delaware corporate law structure – which is similarly utilized by a vast number of Fortune 500 companies – to create a new company known as Alphabet.
Basically speaking, Google created the Alphabet holding company to manage its portfolio of burgeoning concepts that fall outside the realm of internet products – including Calico, its medical research firm, Google X research labs,, Fiber,which is working on a nationwide broadband network, and several capital investment firms. From there, the Alphabet umbrella will subsume Google, Inc., and its shareholders – who in combination own a company worth $226 billion. All owners will maintain the same percentage interest, just with a much broader scope.
How did a company the size of Google ever convince all its shareholders that this restructuring was a good idea? Well, under Section 251(g) of Delaware General Corporate Law, it didn’t have to. Under this little-known code section, companies wishing to merge with a holding company (i.e., Alphabet, Inc.) do not need shareholder consent to complete the transaction. Although the board of directors is still bound by the fiduciary duties of loyalty and fair dealing, a majority vote was not required in this instance, allowing the company to reorganize in the way it saw fit.
Interestingly, Google’s Class C stock, which is held by a vast majority of its non-executive shareholders, precludes participation in corporate voting and does not carry any voting rights at all. So, even if the shareholders disagreed with the move, they would need to initiate a costly derivative lawsuit to unravel the merger.
If you have questions about the best way to manage your business, corporation or shareholders, please do not hesitate to contact one of our skilled business and corporate attorneys at Willcox, Buyck & Williams. Serving clients from Florence to Myrtle, South Carolina, we can be reached at 843.536.8050 or 843.461.3020.