| Shareholders who control corporations either through majority ownership or ownership of sufficient shares in a particular corporate structure to exercise control have a duty of fairness to minority shareholders. In addition to such fairness required by courts, corporation statutes of most states provide for additional remedies for minority shareholders. Those remedies include appraisal rights, dissolution, and judicial intervention.
Appraisal Rights
Shareholders who dissent from certain significant actions of their corporation may seek appraisal of the value of their shares and payment of that value by the corporation. Events that will give rise to the exercise of appraisal rights include transactions specified by statute. Such events normally are of significance comparable to mergers, changes in bylaws affecting share value, and sales of substantial assets of the corporation. Prior to consummation of a transaction that by statute gives rise to a right of appraisal, minority shareholders are entitled to notice from the corporation's board of directors of the shareholders' right to an appraisal.
The right to an appraisal is designed to protect minority shareholders from unfair treatment by controlling shareholders. Unless a transaction is specified in the statute as giving rise to a right of appraisal, dissident minority stockholders are left to seek an injunction halting an unfair transaction of controlling shareholders and the corporation or to disposing of their minority shareholdings at fair market value.
Dissolution
To remedy extreme situations, statutes in most states allow minority shareholders to seek dissolution of the corporation and distribution of corporate assets in a fair manner. Such extreme situations include a deadlock among shareholders and management so that the corporation is unable to act on such illegal or fraudulent activity or wasting of assets by management that dissolution is warranted. Rather than dissolution and liquidation of the corporation, a buyout of minority shareholders may be ordered if a fair value under all the circumstances can be determined. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |