California, like Delaware and other states, authorizes a short-form merger procedure. Essentially, this involves a merger of a subsidiary into its parent or vice versa. Under California's statute, the parent corporation must own all of the outstanding shares or at least 90% of the outstanding shares of each class. Cal. Corp. Code § 1110(a). The principal advantage of the procedure is that it can in most cases be effected by approval of the board of directors of the parent.
It should come as no surprise, however, that matters aren't quite so simple in California. If the parent corporation owns less than all of the outstanding shares, then the board of the subsidiary must approve the "entire resolution" or plan of merger as well as the consideration to be received for each share not owned by the parent. Cal. Corp. Code § 1110(b). California also requires subsidiary board approval when the parent is to be merged into a subsidiary in a short-form merger (i.e., a "downstairs" merger). Cal. Corp. Code § 1110(c). Requiring subsidiary board approval effectively forces the subsidiary's directors to take fiduciary responsibility for approving the merger.
Finally, approval by the outstanding shares of a parent corporation will be required in the case of a downstairs merger that would but for Section 1110 be a merger reorganization (as defined in Section 181) the principal terms of which must be approved by the outstanding shares of any class of the parent corporation pursuant to Section 1201(d). Section 1201(d) requires approval by the outstanding shares of any class of shares that would receive shares of a surviving or acquiring corporation having different rights, preferences, privileges, or restrictions than those surrendered. For this purpose, shares in a foreign corporation are deemed to have different rights, preferences, privileges, or restrictions. The effect of Section 1110(c) is to prevent a reincorporation by means of a short-form downstairs merger without approval of the outstanding shares of the parent.