Shareholders' Appraisal Rights

There are certain fundamental changes that a corporation might approve for which a shareholder might dissent. When that happens, a shareholder will not necessarily be required to abide by the change; instead, shareholders are given rights known as appraisal rights which could require the corporation to purchase the shares of the shareholder. Not all shareholders are provided this right, however. The following have such a right: shareholders entitled to vote on a plan of merger (and shareholders of the subsidiary in a short-term merger); shareholders of a corporation whose shares are being acquired in a share exchange; and shareholders who are entitled to vote on a disposition of all or substantially all of the corporation's property.

If this issue shows up on a Corporations essay, there is a procedure with which to analyze it. The first step is for the corporation to note when providing notice of a shareholders' meeting that shareholders will be entitled to exercise their appraisal rights at the meeting. And before any vote is taken at the meeting, a shareholder who plans to exercise that right must deliver written notice of the intent to demand payment for the shareholder's shares should the corporation choose to move forward with a proposed action at the meeting. The shareholder, in issuing that intent, cannot vote in favor of the proposed action.

If the corporation moves forward with the proposed action, the corporation must notify within 10 days of approval of the action all shareholders who filed an intent to demand payment. The corporation must then pay to the shareholder the amount that the corporation estimates to be the fair value of the shareholder's shares, plus accrued interest.

It's of course possible that the shareholder will not agree with that estimate. If so, the shareholder then has 30 days in which to send the corporation the shareholder's own estimate of value and demand payment for that new amount. (Generally, this will amount to the difference between the corporation's estimate and the shareholder's estimate.)

When the corporation does not agree with the shareholder's estimate, the decision goes to court. The corporation must file an action in court within 60 days of receiving the shareholder's estimate with a request that the court decide on a fair valuation of the shareholder's shares. If the corporation does not satisfy the filing requirement, the shareholder's estimate governs.