Don’t Like Where Management is Taking Your Business? Want Out? Dissent and Get Paid Fair Value For Your Stock.

Arizona law, as well as laws in many other jurisdictions, provide unique opportunities for shareholders to dissent (object, oppose, etc…) and get paid fair value for their stock when the corporation decides to take certain action(s).

The law creating this opportunity to dissent and get paid fair value is referred to as dissenters’ rights law (statutes) or appraisal rights.

For many reasons, corporate management may decide to steer a corporation in a new or different direction or completely revamp operations.  For example, corporate management may desire to enter a new field, acquire new enterprises, sell off a substantial amount of assets, or dramatically change shareholder rights through amending the corporate documents (bylaws, articles of incorporation, etc…).  Not surprisingly, such actions may completely change the nature, shape, and/or business of the corporation.

An investor / shareholder who holds an interest (whether majority or minority interest) in a corporation that has proposed such action(s), may not be comfortable with continued ownership in the radically changed business.   Under such circumstances, the law provides a way for the objecting investor / shareholder to dissent and obtain fair value for their stock – this process is known as the dissenters’ rights process (in some jurisdictions it is known as the appraisal rights process).  In Arizona, “fair value” is defined as follows:

“Fair value” with respect to a dissenter’s shares means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion is inequitable.

A.R.S. § 10-1301 (4) (2010).

The dissenters’ rights process demands strict compliance with several procedural requirements.  In other words, the investor / shareholder and the corporation must follow specific procedural steps outlined within the jurisdiction’s statutes.  Failure to strictly comply with the procedural requirements may result in the investor / shareholder waiving certain rights and/or result in sanctions (a monetary or other penalty) against the dissenter or corporation.

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About Matthew McKinney

Attorney focused on civil and commercial litigation.
This entry was posted in Business Owner, Director, Litigation, Shareholder and tagged , , , , , , , , , , , . Bookmark the permalink.

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