Legal Definitions - dissenters' right

A dissenters' right (also commonly referred to as an appraisal remedy) is a legal protection afforded to shareholders who object to certain major corporate actions. This right allows these dissenting shareholders to demand that the corporation purchase their shares back at a fair value, rather than forcing them to accept the terms of a transaction they oppose.

This protection typically applies to fundamental changes in a company's structure or business, such as:

• Mergers or consolidations with another company.
• The sale of substantially all of the company's assets.
• Certain amendments to the company's articles of incorporation that significantly alter shareholder rights.

The purpose of the dissenters' right is to provide an exit strategy for shareholders who disagree with a fundamental corporate decision and believe the proposed terms of the transaction (e.g., the merger price) do not reflect the true value of their investment.

Here are some examples illustrating the dissenters' right:

• Example 1: Company Merger

  Imagine "GreenTech Solutions Inc.," a publicly traded company specializing in renewable energy technology, is being acquired by "Global Energy Conglomerate." The proposed merger offers GreenTech shareholders $75 per share. While the majority of shareholders and the board approve the deal, a significant minority of GreenTech investors believe the company's proprietary technology and future growth potential make it worth at least $100 per share. These shareholders can exercise their dissenters' right.

  How it illustrates the term: Instead of being forced to accept the $75 per share offer from Global Energy Conglomerate, the dissenting shareholders can demand that GreenTech Solutions (or the acquiring entity, depending on the specific legal framework) buy their shares back at a fair value, which they would seek to have determined by an independent appraisal or a court.

• Example 2: Sale of Substantially All Assets

  "Heritage Textiles Co." has operated a large manufacturing plant for over a century, which constitutes 90% of its total assets. The company's board decides to sell this plant to "Modern Apparel Group" and pivot the company's entire business model to online retail. A group of long-term shareholders, who invested in Heritage Textiles specifically for its manufacturing capabilities, strongly disagree with this strategic shift and the proposed sale price of the plant.

  How it illustrates the term: Since the sale of the manufacturing plant represents a sale of substantially all of Heritage Textiles' assets, the dissenting shareholders can invoke their dissenters' right. They can demand that Heritage Textiles purchase their shares at a judicially determined fair value, allowing them to exit their investment rather than being forced to participate in a company with a fundamentally different business strategy.

• Example 3: Amendment Affecting Shareholder Rights

  "Family Holdings LLC" is a private company with two classes of shares: Class A (with full voting rights) and Class B (non-voting, but with a guaranteed higher dividend preference). The company proposes an amendment to its operating agreement that would convert all Class B shares into Class A shares, but at a conversion ratio that some Class B shareholders believe unfairly dilutes their economic interest and eliminates their preferred dividend status.

  How it illustrates the term: Shareholders holding Class B shares who believe this amendment unfairly diminishes the value or rights associated with their shares may have a dissenters' right. They can demand that Family Holdings LLC buy back their Class B shares at a fair value, rather than being forced to accept the terms of an amendment they believe are detrimental to their investment.