How to Get the Fair Value for Your Shares When You Are in the Minority Vote on a Sale of Substantially All Corporate Assets

In these transactions, the rights and remedies available to shareholders in the minority vote vary widely across jurisdictions, shaped by each state's statutory framework and judicial interpretation.

In general, these protections may include the ability to dissent from the transaction, seek payment of the fair value of their shares and challenge the sale in cases involving fraud, self-dealing or other unfair conduct.

Many states provide some form of appraisal or dissenters' rights, though the scope, procedures and available remedies differ significantly.

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For example, Florida law allows shareholders in the minority vote to demand the fair value of their shares to be paid to them based upon an appraisal determined as of the date before the objectionable action took effect. That value is often calculated using standard business valuation methods.

Shareholders in the minority vote should take the following initial steps to preserve their appraisal rights.

1. Review the relevant statutes

As the philosopher Francis Bacon famously said, "Knowledge is power." Understanding the law is the first step in protecting an investment. Even if a shareholder has no legal training, they should review the relevant statutes in their state that govern dissent and appraisal rights to understand both their rights and how to protect them should they choose to dissent from the action.

Familiarity with the law not only reveals where rights are being overlooked but also strengthens the shareholder's position when working with an attorney or engaging with the corporation.

2. Submit a timely written dissent

In most jurisdictions, a shareholder in the minority vote who wishes to dissent from a majority-approved sale of substantially all corporate assets must submit a timely written objection and follow the statutory procedures to preserve any right to seek the fair value of their shares.

For example, Florida statutes require the corporation to obtain the approval of its shareholders to sell all or substantially all of its property, and it must give notice to every shareholder of the meeting at which the disposition is to be submitted for approval, even those who are not entitled to vote. To preserve appraisal rights, a shareholder must not vote in favor of the transaction and must submit a timely written dissent in accordance with the applicable statutes.

Sometimes, statutes do not give a specific format for the dissent, but they consistently require that it be submitted in writing. If the statute or the corporate governing documents are silent, a good rule of thumb is to track the language of the relevant statute relating to notice of intent to demand payment or similar language.

The dissent should also strictly follow the procedures required and rights afforded by the corporation's governing documents, such as the bylaws or shareholder's agreement, which may have relevant information regarding dissent rights.

After the vote is effected wherein the proposed sale of substantially all the assets of the corporation has been approved and the shareholders in the minority vote have given their notice of dissent, the corporation must deliver a written appraisal notice to the dissenting shareholders.

If the corporation fails to do so, the dissenting shareholders should consult with a business lawyer experienced in working with closely held corporations to ascertain their rights. Legal counsel can help enforce the shareholders' rights.

3. Request key corporate records

If the corporation fails to deliver the appraisal notice or the shareholder disagrees with the corporation's assessment of the fair value of their shares, the shareholder may make a statutory demand for access to certain financial records from the corporation.

These documents assist a business valuator to perform an appraisal of the corporation, assess the company's true worth and, thereby, the fair value of the shareholder's ownership interest.

For example, Florida law recognizes a shareholder's right to inspect certain records. Under the state's statute, corporations must maintain basic records that shareholders are entitled to review.

In addition, the rule gives shareholders the right to inspect additional records, such as accounting documents, if the request is made in good faith, with specificity, and for a proper purpose related to their rights.

If the corporation refuses to comply, shareholders should consult with a business attorney who can enforce their statutory rights and, if necessary, seek court intervention to obtain the records.

Following these steps can strengthen a shareholder's ability to assert their dissent rights and to receive the fair value of their shares.

Lan Kennedy-Davis is a partner at RumbergerKirk with a diverse practice that spans corporate transactions, general and complex business litigation and family law.

Sandra Ferrin, special counsel at RumbergerKirk, provides legal representation to corporate clients and individuals in shareholder and partnership disputes, breach of contract, breach of fiduciary duty and business torts.

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