Dissenters right

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Dissenters right
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Dissenters right 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.

Short history

In the past, mergers and acquisitions required a unanimous vote of all shareholders of the company. It wasn't easy to get. A single non-attached member could veto a merger or acquisition, even if it was best for the company. When the law on the rights of dissenting persons came into force, a single shareholder could no longer prevent a merger or acquisition on its own, but could instead choose to withdraw cash from its shares. 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. Although dissenting rights have eased a number of the obstacles to a corporate transaction, they're still not without their hiccups. Under appraisal rights, a dissenting shareholder who objects to an extraordinary transaction (such as a merger or consolidation) may have his or her shares of the pre-merger or pre-consolidation corporation appraised (valued), and be paid the fair market value of his or her shares by the pre-merger or pre-consolidation corporation.Over the past three decades, the number of both dissenting shareholder appraisal rights claims and shareholder oppression claims increased significantly(L.H.Tran,I.V. Vrublevskaya 2015 p.8). This increase has created a demand for forensic-related business and security valuation services.

Fair value

Most states passed statutes allowing a shareholder to “dissent” from certain corporate transactions that change the fundamental nature of the business and to liquidate his shares for their “fair value“(B.Byrd 2015,p.2). The Georgia Code defines fair value as “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“. This definition is remarkably circular, and there is almost no Georgia case law expanding the meaning of fair value.

The business valuation approaches and methods

Cases where the court takes into account the rights of different shareholders (L.H.Tran,I.V.Vrublevskaya 2015,p.13.):

  • The income approach discounted cash flow method- widely used to estimate fair value
  • The income approach direct capitalization method- often used to estimate fair value when long-term financial projections are not available,
  • The market approach guideline methods
  • The asset-based approach adjusted net asset value method or the asset accumulation method, which consider the going-concern value of the entity's assets (both tangible and intangible) less the current value of the entity's liabilities (both recorded and contingent).


Author: Zofia Rey