# OCC Interpretive Letter No. 891: Letter finds that a national bank may adopt corporate governance provisions of Model Business Corporation Act (MBCA) and engage in a share exchange to ensure that newly formed parent holding company will own 100 percent of shares of bank

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/OCC_INT0891

## Section

- **Citation:** OCC Interpretive Letter No. 891
- **Heading:** Letter finds that a national bank may adopt corporate governance provisions of Model Business Corporation Act (MBCA) and engage in a share exchange to ensure that newly formed parent holding company will own 100 percent of shares of bank
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** OCC Interpretive Letters / Letter finds that a national bank may adopt corporate governance provisions of Model Business Corporation Act (MBCA) and engage in a share exchange to ensure that newly formed parent holding company will own 100 percent of shares of bank.

## Text

O
Comptroller of the Currency
Administrator of National Banks
Washington, DC 20219
Interpretive Letter #891
July 2000
April 26, 2000 12 USC 214
Re: Share Exchanges Pursuant to Model Business Corporation Act ("MBCA")
Dear [ ]:
This is in response to your request for confirmation that a national bank may elect the corporate
governance provisions of the MBCA and complete a share exchange in accordance with those
provisions. Based on the representations that you have made, we conclude that a bank may
effect a share exchange by following the provisions of the MBCA.
Background
The bank would elect the corporate governance provisions of the MBCA through amendment to
its articles of association and bylaws, and engage in a share exchange as provided by the MBCA.
The bank would form a parent holding company, and the share exchange would ensure that the
holding company would own 100 percent of the shares of the bank.
The bank would use several steps to accomplish the share exchange. The bank would form a
company to act as the holding company of the Bank.1 The shareholders of the bank would vote
on the plan of share exchange. If the holders of two-thirds of the shares of the bank approve the
share exchange, the holding company would then exchange its shares for shares of the bank
using the procedures described in the MBCA. 2 As a result, each shareholder of the bank would
own shares of the holding company, and the holding company would own 100 percent of the
shares of the bank. Each shareholder of the bank would have the opportunity to own the same

1 The bank would file an application with the appropriate Federal Reserve Bank to form the holding company.
2 See MBCA § 11.02 et seq.
h shareholder of the bank would
own shares of the holding company, and the holding company would own 100 percent of the
shares of the bank. Each shareholder of the bank would have the opportunity to own the same

1 The bank would file an application with the appropriate Federal Reserve Bank to form the holding company.
2 See MBCA § 11.02 et seq.

- -
2
number and percentage of shares in the holding company as that shareholder previously held in
the bank. In the alternative, shareholders could exercise dissenters' rights and receive cash for
their shares.3
Applicable Law
National banks may adopt corporate governance procedures that comply with applicable federal
banking law and safe and sound banking practices. An OCC regulation provides that:
To the extent not inconsistent with applicable Federal banking statutes or regulations, or
bank safety and soundness, a national bank may elect to follow the corporate governance
procedures of the law of the state in which the main office of the bank is located, the law
of the state in which the holding company of the bank is incorporated, the Delaware
General Corporation Law, Del. Code Ann. Tit. 8 (1991, as amended 1994, and as
amended thereafter), or the Model Business Corporation Act (1984, as amended 1994,
and as amended thereafter). A national bank shall designate in its bylaws the body of law
selected for its corporate governance procedures.4
The MBCA expressly permits corporations to conduct share exchanges.5 The holders of a
majority of each class of shares entitled to vote must approve the plan of share exchange.6 The
corporation's board of directors also must approve the transaction
ed 1994,
and as amended thereafter). A national bank shall designate in its bylaws the body of law
selected for its corporate governance procedures.4
The MBCA expressly permits corporations to conduct share exchanges.5 The holders of a
majority of each class of shares entitled to vote must approve the plan of share exchange.6 The
corporation's board of directors also must approve the transaction. 7 After the shareholders
approve the share exchange, the acquiring corporation must deliver articles of share exchange to
the secretary of state.8
The MBCA requires corporations conducting share exchanges to provide dissenters' rights to
shareholders.9 Corporations must include notice of dissenters' rights with the notice for the
meeting at which the shareholders will vote on the transaction. 10 Any shareholder who wishes to
dissent must give notice to the corporation of intent to dissent and may not vote in favor of the
transaction at the shareholders' meeting.11 If the shareholders approve the transaction, the
corporation must send written notice to all dissenters after the meeting concerning the procedure

3 See id. at § 13.01 et seq.
4 12 C.F.R. § 7.2000(b)
5 MBCA § 11.02(a).
6 Id. at § 11.03(e).
7 Id. at § 11.02(a) and 11.03(a)
8 Id. at § 11.05(a).
9 Id. at § 13.02(a)(2)
10 Id. at § 13.20(a).
11 Id. at § 13.21 (a).

- -
3
for demanding payment.12 Dissenting shareholders must then demand payment, and the
corporation must make payment to the shareholders.13 Any shareholder who is dissatisfied with
the payment offered must provide the corporation with an estimate of fair value.14 The
corporation must then either pay the amount requested by the shareholder, or seek an appraisal
from the court.15 In an appraisal proceeding, the corporation is presumed to pay costs, but the
court may assess the costs to the shareholders if the court finds that the shareholders' actions
were arbitrary, vexatious, or not in good faith
t provide the corporation with an estimate of fair value.14 The
corporation must then either pay the amount requested by the shareholder, or seek an appraisal
from the court.15 In an appraisal proceeding, the corporation is presumed to pay costs, but the
court may assess the costs to the shareholders if the court finds that the shareholders' actions
were arbitrary, vexatious, or not in good faith. 16
Federal banking law does not expressly address the authority of national banks to engage in
share exchanges. There are several mechanisms, however, by which a national bank may form a
parent holding company that owns 100 percent of the shares of a bank. For example, a national
bank can effect a holding company reorganization by forming a holding company and chartering
an interim bank, which is a subsidiary of that company. The existing bank then merges into the
interim bank.17 The National Bank Act provides protection for shareholders in an interim merger
by providing dissenters' rights.18
A national bank may become a holding company subsidiary through other methods, e.g., by
forming a holding company which then conducts a tender offer for the shares of the bank. Those
methods can be time consuming, relatively expensive, and present a risk that the holding
company will acquire less than 100 percent of the bank's shares.

12 Id. at § 13.22.
13 Id. at §§ 13.23(a) and 13.25(a).
14 Id. at § 13.28(a).
15 Id. at § 13.30(a).
16 Id. at § 13.3 1 (a).
17 See 12 U.S.C. § 215a and 12 C.F.R. § 5.33(e)(4). Some circuit courts have permitted interim mergers. See, e.g.,
NoDak Bancorporation v. Clarke, 998 F.2d 1416 (8th Cir. 1993) (permitting interim merger of national bank that
froze out minority shareholders).
18 See 12 U.S.C. § 215a(b)-(d). A dissenting shareholder must either vote against the merger, or give written notice
of dissent prior to or at the shareholder meeting at which the shareholders vote on the merger
ve permitted interim mergers. See, e.g.,
NoDak Bancorporation v. Clarke, 998 F.2d 1416 (8th Cir. 1993) (permitting interim merger of national bank that
froze out minority shareholders).
18 See 12 U.S.C. § 215a(b)-(d). A dissenting shareholder must either vote against the merger, or give written notice
of dissent prior to or at the shareholder meeting at which the shareholders vote on the merger. The value of the
dissenting shareholder's shares is determined by an appraisal made by a committee of three persons: one chosen by
the dissenting shareholders, one chosen by the directors of the bank (as it exists after the merger), and one chosen by
the other two members of the committee. If the committee fails to determine a value of the shares, or a dissenting
shareholder is not satisfied with the value determined, the OCC must make an appraisal of the shares. The resulting
bank must pay the costs of any appraisal conducted by the OCC.

- -
4
Discussion
A national bank may adopt MBCA corporate governance procedures and conduct a share
exchange, to the extent that those procedures are not inconsistent with applicable federal banking
statutes and regulations. OCC regulation expressly permits a national bank to elect the corporate
governance procedures of the MBCA. 19
MBCA provisions allowing share exchanges are not inconsistent with applicable federal banking
statutes or regulations. MBCA provisions permitting share exchanges are consistent with those
provisions in federal banking law that permit national banks to accomplish the same result
through different steps where the bank provides adequate dissenters' rights, as described below.
To ensure consistency with federal banking law addressing interim mergers,20 national banks that
effect a share exchange must provide reasonable appraisal rights to those shareholders who
choose not to receive shares by dissenting from the transaction
permit national banks to accomplish the same result
through different steps where the bank provides adequate dissenters' rights, as described below.
To ensure consistency with federal banking law addressing interim mergers,20 national banks that
effect a share exchange must provide reasonable appraisal rights to those shareholders who
choose not to receive shares by dissenting from the transaction. A national bank conducting a
share exchange should provide dissenters' rights that are substantially similar, although not
necessarily identical to those in section 215a.21
The MBCA provision governing share exchanges provides shareholders with dissenters' rights
that are substantially similar to those in section 215a for interim mergers.22 Both the MBCA and
section 215a provide shareholders the right to dissent and receive fair value for the shares.23 In
both cases, if the parties are unable to settle on the fair value of the shares, an independent third
party (a state court under the MBCA or the Comptroller under the National Bank Act) ultimately
determines the fair value of the shares. Under each system of dissenters' rights, a dissatisfied
shareholder may dissent from the transaction and receive the fair value of the shares, as
determined by the independent third party.
The MBCA in two respects is not consistent with the merger provisions of federal banking law.
With regard to dissenters' rights, the MBCA provides that the corporation must pay the cost of
any judicial appraisal, unless the court finds that the dissenting shareholders acted arbitrarily,
vexatiously, or not in good faith in demanding payment.24 Federal banking law, in contrast,
requires the resulting bank to pay for any Comptroller appraisal, without exception. 25 Section

19 12 C.F.R. § 72000(b).
20 12 U.S.C. § 215a.
21 See Footnote 18, supra.
22 MBCA § 13.01 et seq.
23 The scheme of dissenters' rights in the MBCA is also substantially similar to that found in Iowa law
ng payment.24 Federal banking law, in contrast,
requires the resulting bank to pay for any Comptroller appraisal, without exception. 25 Section

19 12 C.F.R. § 72000(b).
20 12 U.S.C. § 215a.
21 See Footnote 18, supra.
22 MBCA § 13.01 et seq.
23 The scheme of dissenters' rights in the MBCA is also substantially similar to that found in Iowa law. Compare
MBCA at § 13.01 et seq. with Iowa Code § 490.1301, et seq. The OCC has found that the dissenters' rights available
under Iowa law afford comparable protections to corresponding provisions in the National Bank Act. See
Interpretive Letter No. 786, reprinted in [1997 Transfer Binder] Fed. Banking Law Rep. (CCH) ¶ 81-213 (June 9,
1997) and Conditional Approval No. 99-10 (Apr. 1, 1999) at 5.
24 MBCA § 13.31(a).

- -
5
7.2000(b) limits the ability of national banks to adopt alternative corporate governance to only
those statutes that are not inconsistent with federal banking law so that national bank
shareholders will not suffer a disadvantage resulting from the bank's selection of that alternative
law. To meet that limitation in section 7.2000(b), a national bank proposing to adopt the MBCA
and conduct a share exchange must agree to pay the cost of any judicial appraisal that may result.
The bank must also agree to pay for arbitration of the matter if the appropriate court refuses
jurisdiction of an appraisal action. In addition, any arbitration must be conducted consistent with
the rules of the American Arbitration Association or other organization with expertise in
alternative dispute resolution
hare exchange must agree to pay the cost of any judicial appraisal that may result.
The bank must also agree to pay for arbitration of the matter if the appropriate court refuses
jurisdiction of an appraisal action. In addition, any arbitration must be conducted consistent with
the rules of the American Arbitration Association or other organization with expertise in
alternative dispute resolution.
With regard to the share exchange generally, the MBCA requires approval of the share exchange
by a majority of each class of shares entitled to vote.26 Federal banking law, in contrast,
requires approval of a merger agreement by the shareholders owning two-thirds of the shares of
the bank.27 To ensure that national bank shareholders will not suffer any disadvantage from the
difference in approval requirements, a national bank proposing to adopt the MBCA and conduct
a share exchange must also agree not to complete the transaction if only shareholders holding
less than two-thirds of the shares of the bank approve the transaction.
Conclusion
For the above reasons, and subject to the above conditions, we conclude that the Bank may effect
a share exchange pursuant to the MBCA. If you have any questions concerning this letter, please
contact Virginia S. Rutledge, Senior Attorney, Securities and Corporate Practices Division, at
202-874-5210.
Sincerely,
-signed-
Julie L. Williams
First Senior Deputy Comptroller and Chief Counsel

25 12 U.S.C. § 215a(d).
26 MBCA § 11.03(e).
27 See 12 U.S.C. § 215a(a)(2).

## Nearby sections

- [OCC Interpretive Letter No. 719 Letter concludes that an ESOP is a "company' for purposes of 12 U.S.C. 371c and that an ESOP that controls at least 25% of a bank's voting stock is an "affiliate" under sec. 371c (supersedes existing OCC interpretive letter #261). (10/26/89)](https://www.frixlaw.com/law-library/statutes/OCC_INT0719.md)
- [OCC Interpretive Letter No. 720 Group of affiliate national banks may collectively own, through operating subsidiaries, minority interest in a merchant credit card processing subsidiary. (01/26/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0720.md)
- [OCC Interpretive Letter No. 722 A national bank may invest CIF assets in mutual funds, including mutual funds that pay the bank a servicing fee, without the bank having to reduce its trustee fees, if the bank concludes, based upon a reasoned opinion of trust counsel, that such an arrangement is authorized by applicable state law, is consistent with the trust instrument, is appropriate for the particular trust accounts, and is consistent with OCC regulations, including in particular 12 C.F.R. 9.18(b)(12). (03/12/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0722.md)
- [OCC Interpretive Letter No. 724 Bank can sell vehicle service contracts to customers who use home equity loan proceeds to purchase a vehicle, and the maturity of the service contract may be different from the maturity of the loan. (04/22/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0724.md)
- [OCC Interpretive Letter No. 725 National bank to establish an operating subsidiary to engage in permissible derivatives-related activities. (05/10/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0725.md)
- [OCC Interpretive Letter No. 726 Letter concerns the application of the Community Reinvestment Act (CRA) regulations to financial institutions' support of microenterprise lending programs. (06/21/96).](https://www.frixlaw.com/law-library/statutes/OCC_INT0726.md)
- [OCC Interpretive Letter No. 730 Letter concludes that loans proposed by the bank to an unaffiliated distributor of mutual funds would not be subject to interaffiliate lending restrictions contained in 12 U.S.C. 371C. (05/29/96).](https://www.frixlaw.com/law-library/statutes/OCC_INT0730.md)
- [OCC Interpretive Letter No. 732 National bank may make a 5.5% investment in software company which is engaged in the design, development, marketing and maintenance of a network for electronic funds transfers and electronic data interchange, including transacting electronic commerce and marketing software products for use on its world-wide electronic commerce network. (05/10/96).](https://www.frixlaw.com/law-library/statutes/OCC_INT0732.md)
- [OCC Interpretive Letter No. 733 National bank receiver is subject to the rights of secured creditors and creditors entitled to setoff. U.S. legal principles regarding enforcement of security interests are applicable to a receivership of a federal branch or agency conducted under National Bank Act. Therefore, receiver of an uninsured federal branch or agency does not have the right to interfere with the rights of secured creditors, including application of collateral held in U.S. to obligations of a non-U.S. office of the bank. (06/19/96).](https://www.frixlaw.com/law-library/statutes/OCC_INT0733.md)
- [OCC Interpretive Letter No. 736 Lending limit exception for participations not limited to banks. Non-banks may act as participants. (07/25/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0736.md)
- [OCC Interpretive Letter No. 737 Huntington National Bank's acquisition of minority interest in a limited liability company providing stored value systems. (08/19/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0737.md)
- [OCC Interpretive Letter No. 738 National bank's participation in a guaranty issued by an agent for a syndication of lenders with respect to their borrower's letter of credit reimbursement obligations to another bank or financial institution is permissible under I.R. 7.1016. (08/14/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0738.md)
- [OCC Interpretive Letter No. 740 Letter advises the Bank as follows: 1) The question of whether "salary" as used in 12 C.F.R. 2.4 includes an officer's base salary, bonuses, director's fees and/or any other compensation paid by the Bank must be determined by the Bank's management; 2) the question of whether the payment bonuses for credit life sales under 12 C.F.R. 2.4 is based on salary received by the recipient in a calendar year, a fiscal year, or any 12-month period must be determined by the Bank's management; and 3) pursuant to 12 C.F.R. 2.4, if the Bank's CEO is a loan officer and the CEO participates in the bonus plan under which payments based on credit life insurance sales are made, the CEO must be included in averaging the salaries of loan officers that participate in the Bank's bonus or incentive plan. (08/19/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0740.md)
- [OCC Interpretive Letter No. 741 National bank may acquire majority interest in company which operates call center facility which operates programs by which potential customers for new or used automobiles may access databases containing information on the used and new car inventories of numerous automobile dealerships in its metropolitan area. (08/19/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0741.md)

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/OCC_INT0891. Check the current official text before relying on it. Not legal advice.