The quintessential responsibility of shareholders to a corporation is to vote at annual meetings or to approve significant transactions, such as a proposed merger. In many ways, the most important vote cast by a shareholder is when the corporation requires consent to take an action. Of course, unanimous consent is not required and, thus, corporate action will be taken over the objection of some shareholders. In that case, it is important for corporations to remember that dissenting shareholders may assert appraisal rights wherein a court will decide the “fair value” of the shares of those shareholders. Thus, although the transaction at issue has “closed,” potentially there is still work to be done to defend against an appraisal suit.
Recently, Delaware corporations have experienced an increase in appraisal actions. They have become a favored tool of activist shareholders who believe their shares have been undervalued in a merger transaction. Given the success that shareholders have had enforcing their appraisal rights in Delaware courts, New York-based companies may also be targeted for appraisal actions.
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