Dissent rights
Dissent rights let a shareholder who votes against certain major corporate changes, such as an amalgamation or a sale of substantially all the company’s assets, demand that the company buy back their shares for fair value instead of being forced to go along with the change.
Corporate statutes generally let a majority of shareholders approve major changes over a dissenting minority’s objection. Dissent rights are the trade-off: a shareholder who voted against the change and follows the required steps can exit by having their shares bought out, rather than being stuck as an unwilling participant.
When dissent rights typically apply
- Amalgamations with another corporation
- Sales of substantially all of the company’s assets
- Certain amendments to the articles that change shareholder rights
- Other fundamental changes identified in the governing statute
The trade-off for the company
If enough shareholders dissent, a company can end up owing a significant buyout payment right when it is trying to complete a major transaction, which is one reason boards watch dissent rights closely before putting a matter to a vote. Fair value, when shareholders and the company cannot agree on it, is often decided by a court.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryCorporate Law
- 02Treadstone LawLegal commentaryMergers & Acquisitions
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