Also known as: significant continuing business activities
Written by attorneys — see sources below.
A retained business activity after a major asset disposition that meets statutory quantitative thresholds. The activity is conclusively deemed significant if it represented at least twenty-five percent of the corporation's consolidated total assets at the end of the most recent fiscal year and at least twenty-five percent of either revenues from continuing operations or income from continuing operations for that year.
Sapphire Technologies agrees to sell its core cloud platform and engineering team to a rival. After the sale the company will retain only a small maintenance unit that accounted for less than five percent of consolidated assets and revenues in the prior fiscal year. Because the retained activity falls below the twenty-five percent benchmarks, the disposition leaves Sapphire without a significant continuing business activity and requires shareholder approval.
Solstice Ventures plans to sell its primary research division representing seventy-eight percent of assets. The company will keep its analytics unit that generated twenty-six percent of revenues and twenty-two percent of income from continuing operations last year. The board concludes the retained unit satisfies the quantitative thresholds and therefore constitutes a significant continuing business activity, so no shareholder vote is needed.
A corporation conclusively retains a significant continuing business activity if the retained operations represented at least twenty-five percent of consolidated total assets at the end of the most recent fiscal year and at least twenty-five percent of either revenues or income from continuing operations for that year.
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No. The statute requires that the retained activity meet the twenty-five percent thresholds on a consolidated basis. A de minimis unit that falls well below those benchmarks does not qualify as significant continuing business activity.
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Board approval by resolution is always required first. Shareholder approval is additionally required when the disposition would leave the corporation without a significant continuing business activity under the statutory test.
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The statute supplies a conclusive presumption only when the twenty-five percent thresholds are satisfied. It does not address the effect of falling below those percentages.
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