Dissenters’ rights

Dissenters’ rights are part of a state corporate law that gives a corporation’s shareholders the right to receive a cash payment for the fair value of their shares in an acquisition or merger they did not consent to.

Back in the day, mergers and acquisitions needed a unanimous vote from all the shareholders of the company. Obviously, this was not easy to get and a single dissenter could effectively veto a merger or acquisition even if it was what’s best for the company.

When the dissenters’ rights law went into effect, a single shareholder could no longer prevent a merger or acquisition on their own but they could opt for a cash out of their shares instead.

A merger or consolidation is considered an extraordinary matter that has to be determined by the company’s shareholders.

If the majority of a company’s shareholders approve the merger or consolidation, it will go forward, and the shareholders will be compensated. However, the shareholders who votes against the transaction aren’t required to accept the terms of the dissenters’ rights. They can instead exercise appraisal rights, in which their shares before the merger are evaluated based on fair market price.

 

EXAMPLE:

I do not want our company to merge with that other one so I’m going to exercise my dissenters’ rights. What’s that? I have to be a shareholder in order to do that? UGH!