Appraisal Rights
What does "Appraisal Rights" mean in law?
Appraisal rights (also called dissenters' rights) are a statutory remedy that entitles shareholders who dissent from certain fundamental corporate transactions—most commonly mergers—to have a court determine and receive the fair value of their shares in cash rather than accept the consideration offered in the transaction. To exercise appraisal rights, the dissenting shareholder must typically follow precise procedural requirements: providing written notice of dissent before the shareholder vote, voting against or abstaining from the transaction, and filing a timely petition for appraisal with the court. The court's fair value determination excludes any element of value arising from the transaction itself, and the valuation methodology may include discounted cash flow analysis, comparable company analysis, and other recognized techniques. Appraisal rights serve as the primary safeguard for minority shareholders who believe they are being cashed out at an inadequate price in a transaction they cannot block.
Definition
Appraisal rights (also called dissenters' rights) are a statutory remedy that entitles shareholders who dissent from certain fundamental corporate transactions—most commonly mergers—to have a court determine and receive the fair value of their shares in cash rather than accept the consideration offered in the transaction. To exercise appraisal rights, the dissenting shareholder must typically follow precise procedural requirements: providing written notice of dissent before the shareholder vote, voting against or abstaining from the transaction, and filing a timely petition for appraisal with the court. The court's fair value determination excludes any element of value arising from the transaction itself, and the valuation methodology may include discounted cash flow analysis, comparable company analysis, and other recognized techniques. Appraisal rights serve as the primary safeguard for minority shareholders who believe they are being cashed out at an inadequate price in a transaction they cannot block.
Example
When a controlling shareholder approved a cash-out merger at $30 per share, dissenting minority shareholders exercised their appraisal rights and a Delaware court determined the fair value was $45 per share, entitling them to a significant premium over the merger consideration plus statutory interest.