Appraisal Rights

What are appraisal rights?

Appraisal rights refer to the statutory rights of shareholders to receive a fair valuation of their shares in certain corporate transactions, such as mergers, share exchanges, conversions, or the sale of all or substantially all assets of the corporation. In addition, appraisal rights are intended to protect minority shareholders against potential coercion or unfair treatment by majority shareholders during such transactions.

One example of when corporate executives or boards of directors require counsel on appraisal rights under Florida and federal law is during a merger or acquisition. In this scenario, the corporation must give shareholders who are or may be entitled to appraisal rights the required notices and, once the transaction becomes effective, its estimate of the fair value of their shares and an offer to pay that amount. Another example is the sale of all, or substantially all, of a company’s assets outside the usual and regular course of business. This sale may trigger appraisal rights for shareholders who are entitled to vote on it, dissent from the transaction, and wish to obtain a fair valuation of their shares.

Need help with a matter related to appraisal rights? Schedule your consultation today with a corporate governance and operations attorney.

Which Florida and federal laws and regulations apply to appraisal rights?

The Florida Business Corporation Act (FBCA) covers appraisal rights for shareholders of corporations. Sections 607.1301 to 607.1340 of the FBCA outline the specific circumstances under which shareholders can assert appraisal rights, the procedures for doing so, and the determination of fair value for their shares.

Similarly, the Florida Revised Limited Liability Company Act (FRLLCA) contains provisions addressing appraisal rights for LLC members. Specifically, Section 605.1006 of the FRLLCA identifies when LLC members are entitled to appraisal rights and to payment of the fair value of their membership interests, and Sections 605.1061 to 605.1072 govern the procedures for asserting those rights.

Appraisal rights themselves arise under these Florida statutes. Federal securities law is relevant because, subject to statutory exceptions such as interested transactions, appraisal rights generally are not available for shares or membership interests that are “covered securities” under section 18(b)(1)(A) or (B) of the Securities Act of 1933.

What appraisal rights issues commonly lead to litigation?

The following issues are among the most common in litigation involving appraisal rights:

• Disagreement Over Fair Value: Shareholders and companies may have differing opinions on the fair value of shares, leading to disputes and potential litigation.
• Inadequate Disclosure: Companies may fail to provide sufficient information about the transaction and the appraisal rights process, resulting in lawsuits claiming that shareholders were not adequately informed.
• Improper Exercise of Appraisal Rights: Shareholders may fail to properly assert their appraisal rights according to the required procedures, leading to disputes over whether they are entitled to a fair value determination.
• Breach of Fiduciary Duties: Shareholders may claim that the board of directors or corporate executives breached their fiduciary duties in connection with the transaction, resulting in unfair treatment or coercion of minority shareholders.
• Challenges to the Appraisal Process: Shareholders may contest the methodology or experts used by the company to determine the fair value of their shares.
• Timing Issues: Disputes may arise regarding the relevant dates for determining fair value or the deadlines for asserting appraisal rights.

What are effective measures to minimize the risk of litigation over appraisal rights?

Implementing the following strategies may help mitigate risk:

• Transparent and Timely Communication: Ensure that all relevant information about the transaction and the appraisal rights process is disclosed to shareholders promptly and transparently.
• Engage Qualified Experts: Retain experienced professionals, such as appraisers or financial advisors, to provide independent, objective valuations of the company’s shares.
• Adhere to Procedural Requirements: Strictly follow all legal requirements and procedures related to appraisal rights under Florida and federal law, including proper notice to shareholders and adherence to deadlines.
• Fair Treatment of Shareholders: Treat all shareholders equitably during the transaction process, avoiding coercion or disparate treatment of minority shareholders.
• Seek Legal Guidance: Consult legal counsel about compliance with applicable laws and regulations and about potential disputes or challenges related to appraisal rights.
• Consider Alternative Dispute Resolution: Explore options such as mediation or arbitration to resolve disputes before they escalate to litigation, which can save time and resources for both parties.

When a set of facts is appropriate to meet litigation requirements, there are many paths a claimant may take. Jimerson Birr takes a value-based approach, which means we look at each action with our clients from the point of view of costs, benefits, and potential liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation.

Frequently Asked Questions

1. How are appraisal rights different from dissenters’ rights?

Under current Florida law, they are generally the same remedy. The FBCA uses the term “appraisal rights” for the right of a shareholder who dissents from certain corporate actions to be paid the fair value of the shareholder’s shares, and “dissenters’ rights” is a common name for that same right. The specific rights and procedures for exercising them can vary depending on the applicable statute and entity type.

2. Are appraisal rights available in all types of corporate transactions?

No, appraisal rights are typically limited to specific corporate transactions, such as mergers, share exchanges, conversions, or the sale of substantially all assets. The availability of appraisal rights will depend on the nature of the transaction, the type of entity involved, the governing Florida statutes, and the company’s governing documents.

3. Can minority shareholders exercise appraisal rights?

Yes, minority shareholders can exercise appraisal rights if they meet the requirements outlined in the applicable statutes and regulations. However, the extent of their rights and the process for asserting them may vary depending on the type of entity and the governing documents of the company.

Have more questions about governance or operations for your business?

Crucially, this overview of appraisal rights does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys advise individuals and companies on the issues described on this page, including the merits of a claim or defense and the potential exposure. To discuss your situation with a Jimerson Birr attorney, call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.