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Corporations • Fundamental Corporate Changes
CORP#064
Legal Definition
In order to obtain the right of appraisal, a dissenting shareholder must (1) prior to the shareholder vote on the change, file a written notice of objection and intent to demand payment; (2) not vote in favor of the change; and (3) make prompt written demand to be bought out.
Plain English Explanation
The right of appraisal is a shareholder's ability to sell their shares back to the corporation for a fair market value when the corporation pursues a change that the shareholder disagrees with. In other words, it is the shareholder deciding they no longer want to be a part of the corporation and demanding that the corporation buy them out. To accomplish this, the shareholder must follow whatever the State laws are, which are generally:
(1) Before the shareholders vote on the new proposed change, the upset shareholder has to submit a written letter that lets everyone know they are upset and they plan on demanding to be bought out if the change is voted into effect;
(2) The upset shareholder cannot vote in favor of the change. This would be a sneaky way to try to get bought out if you threatened the corporation to not pass a change, and then voted in support of the change; and
/(3) If the change is voted into effect, the upset shareholder must promptly demand to be bought out.
(1) Before the shareholders vote on the new proposed change, the upset shareholder has to submit a written letter that lets everyone know they are upset and they plan on demanding to be bought out if the change is voted into effect;
(2) The upset shareholder cannot vote in favor of the change. This would be a sneaky way to try to get bought out if you threatened the corporation to not pass a change, and then voted in support of the change; and
/(3) If the change is voted into effect, the upset shareholder must promptly demand to be bought out.
Hypothetical
Hypo 1: VeganCorp has, for 10 years, been the largest producer of vegan products. Sam, a vegan, is a shareholder. One day, the board decides that in order to maximize profits, they will start selling beef jerky made from only the cutest, most delicious baby cows. Sam is appalled and, if the change passes, refuses to be a part of VeganCorp. Sam wants to invoke his right of appraisal. A week before the company votes on this change, Sam writes a letter and submits it to the board of directors letting them know they are monsters and, if it passes, he will demand to be bought out. On the day of the vote, Sam refuses to participate and, instead, protests outside of the meeting room. After the other shareholders approve the change, Sam immediately submits a demand to the board of directors to be bought out. Result: Sam has properly followed the requirements to obtain a right of appraisal, which means now the corporation must purchase Sam's shares at a fair market price.
