Legal Definitions - appraisal remedy

The appraisal remedy is a statutory right allowing corporate shareholders who oppose a major corporate action, such as a merger, to demand the corporation buy their shares. The price for these shares is determined by a judicial appraisal.

The appraisal remedy is a legal protection available to shareholders who disagree with a major, fundamental change proposed by the company they own shares in. It grants these dissenting shareholders the right to demand that the corporation buy back their shares at a fair value, which is independently determined, often by a court or a neutral third party.

This remedy ensures that shareholders are not forced to remain invested in a company whose new direction or structure they fundamentally oppose due to an extraordinary corporate event. It also aims to ensure they receive a fair price for their investment, even if they disagree with the company's proposed transaction price.

• Example 1: A Company Going Private

  Imagine "InnovateTech Inc.," a publicly traded software company, announces its plan to "go private." This means its shares will no longer be traded on a stock exchange, and the company will become privately owned. A long-term shareholder, Ms. Chen, believes the offer price for buying back public shares is significantly below the company's true value and future potential. Instead of accepting the company's offer or being forced to hold shares in a private entity, Ms. Chen can invoke the appraisal remedy. She would petition a court to independently determine the fair market value of her shares. If the court appraises her shares at a higher value than InnovateTech's initial offer, the company would be legally obligated to purchase her shares at that higher, judicially determined price.

• Example 2: Sale of Core Business Assets

  Consider "GreenEnergy Solutions," a company primarily focused on manufacturing solar panels. The company's board of directors decides to sell its entire solar panel manufacturing division, which constitutes 75% of its assets and revenue, to a larger competitor. GreenEnergy Solutions plans to pivot into a new, smaller venture focused solely on energy consulting. Mr. Davies, a shareholder who invested specifically in GreenEnergy Solutions for its manufacturing capabilities, strongly disagrees with this strategic shift, believing it fundamentally alters the company's identity and future prospects. Mr. Davies can exercise his appraisal remedy. He would ask a court to assess the fair value of his shares *before* the sale of the manufacturing division. The company would then be required to purchase his shares at this judicially determined value, allowing him to exit his investment without being forced into the new, unrelated consulting business.