Appraisal Rights

Also referred to as dissenters' rights. A statutory remedy available in many states to stockholders who object to certain extraordinary actions taken by the corporation (such as mergers). This remedy typically allows dissenting stockholders to require the corporation to repurchase their stock at a price equivalent to its fair market value immediately before the extraordinary corporate action.

The nature of the extraordinary corporate action which triggers this right differs in every state. For example, some states make appraisal rights available in an asset purchase transaction or when a company makes certain amendments to its certificate of incorporation, while others do not. However, almost all states consider corporate consolidations and mergers as transactions triggering appraisal rights.

In order to perfect appraisal rights, the dissenting stockholder must follow the requirements set out in the applicable state statute, or else the stockholder permanently risks losing its right to an appraisal. Also, the corporation that is the subject of the appraisal demand (usually the target company) must comply with certain procedures to respond to and participate in the appraisal proceeding. Though many states employ a similar structure for a stockholder to perfect these rights, each state has its own unique characteristics to the process.

Also, some states (such as, Delaware) permit these rights to be provided contractually to partners in a partnership (either a general partnership or a limited partnership) and members in a limited liability company by including such rights in the applicable partnership agreement or LLC agreement.

For more information on appraisal rights, see Practice Note, Appraisal Rights.

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