Appraisal rights involving New York business corporations.

Jul 14, 2021

Law Offices of John Kiritsis, Esq. Phone: 212-922-0005 

By: John Kiritsis, Esq., CPA, MBA, MS, JD, LL.M

 

The BCL (Business Corporation Law) is the New York State’s statutory framework, with regards to legal issues concerning most NY business corporations.  There are constant changes made both to the underlying statutes and regulations governing New York business corporations, as well as, with the applicable judicial interpretation by the Courts.

 

New York gives any dissatisfied shareholder of a business corporation, who dissented from certain types of corporate action - a minimum ownership interest is not required - appraisal rights, specifically, the right to petition the courts to receive payment of the fair cash value of his or her shares. The purpose is to allow a corporation to proceed with an action it views as beneficial, while protecting the rights of dissenting shareholders. Specifically, Section 910 of the BCL, entitles a shareholder of a domestic corporation to appraisal rights if he or she opposed a plan of merger or consolidation to which the corporation is a party, subject to certain enumerated exceptions, including where the shareholder’s shares are publically traded. Appraisal rights are also available to a shareholder who opposed the transfer or disposition of all or substantially all of the assets of a corporation not in the regular course of business, other than a transaction for cash in combination with the dissolution of the selling company. Furthermore, under Section 806 of the BCL, it entitles a shareholder to appraisal rights if the shareholder opposed an amendment to the certificate of incorporation that after the amendment was adopted adversely affected any of the shareholder’s rights, including preferential rights, redemption rights, preemptive rights, and voting rights. Shareholders claiming appraisal rights must follow the procedures and time limits contained per Section 623 of the BCL. The statute is extremely long with many detailed nuances, but the most basic procedures are as follows: prior to the vote being taken on the proposed corporate action, the shareholder must file a written objection to the action, including a demand for payment of the fair value of his or her shares if the corporate action is taken. Upon consummation of the corporate action, the corporation must timely make a written offer to each shareholder who has filed a notice of election to dissent to pay for his or her shares at a specified price, which the corporation considers to be their fair value. If the corporation fails to make a timely offer of payment, or if the dissenting shareholder fails to agree with the price specified in the offer, the corporation may initiate a special proceeding to fix the fair value of their shares; if it fails to do so, the shareholder may initiate the proceeding.

 

This is an area of the law, where New York may significantly deviate from the corresponding laws and regulations of other States.

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