Shareholder Appraisal Rights
Minority shareholders can be substantially affected (and harmed) by the actions of the majority shareholders. This puts minority shareholders in a difficult position. Fortunately, minority shareholders do have some important protections available under Florida law. Perhaps the most valuable legal protection is a minority shareholder’s appraisal rights. These rights, also sometimes referred to as dissenter’s rights, can sometimes be exercised to protect the financial interests of the minority shareholder. They provide an important check on the power of majority shareholders. Essentially, they prevent majority shareholders from changing the underlying nature of a minority shareholder’s investment in a given corporate entity without their consent. In qualifying situations, minority shareholders can exercise their appraisal rights and demand immediate cash payment in exchange for their shares. When this occurs, payments are required to be made at fair market value.
When Can a Minority Shareholder Exercise Appraisal Rights?
Shareholders may not exercise their appraisal rights simply because they disagree with the actions of the majority shareholders. Unfortunately, some business disagreements are inevitable. The law does not seek to litigate ordinary business decisions. Wide deference is given to allow businesses to make their own decision. As a minority shareholder, you may be completely correct that a certain business decision is ill-advised. However, an unwise but still reasonable decision is not sufficient grounds to exercise appraisal rights. Instead, appraisal rights can only be invoked if there has been a material change in the underlying nature of the shareholders relationship to the business. Some examples of majority shareholders decisions for which minority shareholders are entitled to raise a dissent include:
- A merger;
- A share exchange;
- A non-ordinary sale of the assets of the business; and
- An alteration or amendment to the articles of incorporation.
How is Share Value Determined?
When appraisal rights are successfully invoked, minority shareholders are generally entitled to receive fair market value in exchange for their shares. This means that value of the entire business will need to be assessed. It seems simple enough, but in reality fair market value can be very difficult to determine in many cases. Further, there may be some discounts to the fair market value of minority shares. For example, minority shareholders hold shares that lack ‘control’ and are ‘not-marketable’. These issues will be taken into consideration when their value is assessed. Ultimately, if you are involved in a shareholder dispute and are considering exercising appraisal rights, it is imperative that you consult with an experienced West Palm Beach commercial litigation attorney immediately. Your attorney can help to make sure that your shares are fairly valued and that your rights are fully protected.
Do You Need Legal Assistance?
At Pike & Lustig, LLP, our Florida business litigation lawyers have helped protect the rights of many shareholders. If you are shareholder in Florida, and you believe that your rights have been violated, please do not hesitate to contact our firm today to set up a free review of your case. Our firm is based in West Palm Beach and we represent shareholders throughout the region, including in Broward County and Dade County.