Dissenters Rights

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Dissenters Rights
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Dissenters Rights statutes exist in some from in every state, and in the vast majority of the states protection is accorded by an appraisal remedy pursuant to which the dissenting shareholder is entitled to the "fair value" of his or her shares. Fair value for dissenters' rights purposes is simply defined as the value of the share 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 would be inequitable[1].

In a state that does not grant dissenters' rights for sales of assets, there is a serious gap in the shareholder's protection because an effect the same as a merger can be achieved by a sale of assets. For example, assume Corporation A sells its assets to Corporation B and as part of the deal B assumes A's obligations and A dissolves. Thereafter, Corporation A distributes the proceeds of the sale to its shareholders under its plan of dissolution. In reviewing these transactions some courts may determine that there has been a de facto merger, in which dissenters' rights under the merger statute are to be honoured. Two significant effects of so treating transactions so the procedural rights that accompany mergers apply are: The shareholders of the purchasing corporation will be entitled to vote on the transaction, and an appraisal remedy is available to all shareholders entitled to vote[2].

Arise of Dissenters' rights

Under California law, dissenters' rights arise whenever[3]:

  • A plan of merger is submitted.
  • Any exchange of shares between two companies is proposed ( if the member has voting rights).
  • The LLC proposes to sell all or most of its assets outside of the ordinary conduct of its business.
  • The LLC proposes to take any other action to which the articles or operating agreement attach dissenters' or appraisal rights.

If an LLC proposes any action to which dissenters' or appraisal rights apply, the notice to members noting the meeting's time, date, and place must also indicate that dissenters' rights are available. Upon receipt of this notice, a member must notify the LLC of his or her election to exercise dissenters' rights.

Requirements of Dissenters' notice

The holders of certificated shares that have been deposited and of uncertificated ones retain all other rights of a shareholders until these notice to those shareholders who complied with their notice requirements. This dissenters' notice must be sent no later than ten days after the corporate action was taken. The notice is to[4]:

  1. state where payment demand must be sent and when certificates for certificated shares must be deposited;
  2. inform shareholders who hold uncertificated shares of the extent to which share transfers will be restricted after payment demand is received;
  3. supply a form for demanding payment that includes the date of the first announcement to the news media or to the shareholders of the terms of the proposed corporate action and requires that the shareholders certify whether he acquired beneficial ownership of the shares before such date;
  4. set a date by which the payment demand must be received, which date may be not less than thirty nor more than sixty days after the date the dissenters' notice was delivered to shareholders.


  1. R.A. Mann, B.S. Roberts 2016, p.817
  2. J.D. Cox, T.L. Hazen 2003, p.319
  3. M. Spadaccini 2011, p.28
  4. C. Moscow, M.R. Lesser 2000, p.60


Author: Aneta Szewczyk