Dissenter's Rights - Explained
What are Dissenter's Rights?
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What are Dissenters Rights?
Dissenters Rights is a state corporate (or business entity) law enabling the shareholders to receive a cash payment equal to the the fair value of their shares if the company management undertakes a major transaction with which the shareholder does not agree or consent. For example, when a hen a share-to-share merger or acquisition takes place, the shareholders are entitled to demand cash payment for their share if they do not want to be a part of the merger or consolidation.
How do Dissenter's Rights Work?
Generally, a company's regular operations are run by the officers and directors. However, in the event of major transactional undertaking that will change the nature of the company - such as merger and acquisition, the shareholders have the right to express their dissent. Merger and acquisition must always be approved by the present shareholders of the company.
Facilitating Corporate Practice through Dissenters Rights
Before this legislation was passed, just one shareholder could stop a merger or acquisition by expressing his or her dissent even when the merger or acquisition was the only viable option for the company. This legislation has eased out the process by giving the dissenters right to those shareholders who are not ready to enter the merger. They can now simply accept the cash payment according to the fair market value of their shares. Now, if the majority shareholders approve the merger or acquisition, the process advances and the dissenting shareholders receive cash. These dissenting shareholders are not obliged to accept shares in the surviving or successor company. Instead, they may just be paid the fair market value of his or her share by the pre-merger or pre-consolidation corporation.
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