Dissenting Shareholder Suits

Dissenting shareholder suits are minority-shareholder-initiated legal actions that are related to major changes in the corporate or capital structure of the subject business.

Valuation Rights

Valuation rights for dissenters and the acceptable definition of value are sometimes defined by state statues. Some are fairly similar, but there can be major differences between states. Courts also may define the statute in a given jurisdiction.

Depending on the jurisdiction, the valuation rights for the dissent might be the following:

• Merger or consolidation.
• Preferential rights.
• Redemption rights.
• Preemptive rights.
• Cumulative rights.

Triggers for Disputes

Triggers for dissenters rights disputes can be:

• Mergers.
• Going private.
• Reverse stock splits.
• Exchange offers.
• Mergers used to disguise sales of shares to avoid compliance with "first option" rights.
• Dissolutions, asset transfers, and bankruptcy sales.
• Making shares redeemable.
• Altering or destroying the preferences or other rights of preferred shareholders.
• Recapitalizing.
• Reducing capital.

Shareholder Oppression

Shareholder oppression suits are minority-shareholder-initiated legal actions
that are related to the unfair treatment of minority shareholders by controlling shareholder(s).

Reasons for Shareholder Oppression Suits

• Greed and desire of power.
• Personality clashes.
• Martial discord and family quarrels.
• Basic conflict over policy.
• “Purging” the inactive shareholder.
• Problem of the aged founder who hangs on.
• Drive of superior talent to rise.
• Disregard of corporate ritual.

General Standard for Dissent and Shareholder Oppression Suits Fair Value

The Model Business Corporation Act defines "fair value" (the general standard for oppression suits) as follows: "Fair value, with respect to a dissenter's shares, means 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 unless exclusion would be inequitable." Fair value may be different from fair market value and is defined by each state, in statutes, court decisions, or by individual judges.