Historically, fundamental corporate changes required unanimous shareholder approval. This gave each shareholder a right to veto; if even one shareholder voted “no,” the transaction failed. Modern law rejects approach and requires only approval by a designated percentage of the shares. In lieu of a right to veto, modern law provides a shareholder who objects to the fundamental change a “right of appraisal”.

The “right of appraisal” is not simply a right to have your stock appraised. It is a right to force the corporation to buy your stock at “fair value.” Statutes in each state create this right and prescribe detailed steps for exercising it. Failure to adhere to the detailed requirements results in waiver of the right.

1. Circumstances under Which the Right of Appraisal Can Be Exercised
   
   It is important to scour the relevant statutes to determine which fundamental changes will trigger the right of appraisal. The list can vary from state to state. For instance:
   
   

   (1)	In some states, an amendment of the articles (at least, one that will harm a class of shareholders) gives rise to a right of appraisal (for the shareholders harmed).
   (2)	In some states, shareholders of both in a merger (the disappearing corporations and the surviving corporation) have the right of appraisal. In others, however, only the shareholders of the disappearing corporation will have it.
   (3)	In most states, only shareholders who were entitled to vote on the fundamental change will have the right of appraisal. In a few states, though, even holders of non-voting stock will be able to exercise the right.

   
   Speaking very generally, the right exists for holders of voting stock in the disappearing corporation in a merger, for shareholders of a corporation that transfers substantially all its assets, and for shareholders of a company whose shares are acquired in a “share exchange.”
   
   But even if a corporation undertakes one of these changes, there is an important limitation on the availability of the right of appraisal. In most states, the right of appraisal is not available if the company's stock is publicly traded or if the corporation has a large number of shareholders (usually 2,000 or more). This means that the right of appraisal exists in close corporations, which makes sense. Because in a close corporation, there is no market for the stock, and therefore no market value.
   
   
2. How to Exercise Appraisal Rights
   
   The statutes of most states require the dissenting shareholder to take three steps to exercise the right of appraisal.
   
   

   (1)	First, before the shareholders vote on the matter, the dissenting shareholder must file with the corporation a statement of his/her objection to the proposed change and of his/her intent to demand payment if the transaction is approved.
   (2)	Second, the shareholder must abstain or vote against the proposed change.
   (3)	And third, within a set time after notification from the corporation that the change was approved (usually 20 days), the shareholder must make a written demand to be bought out and tender her stock to the corporation.

   
   The burden then falls to the corporation to accept or reject the shareholder's demand. The shareholder may accept that lower figure or reject it. At some point, depending upon the statute, either the corporation or the shareholder will file suit for an appraisal. Often, the corporation must do this within 60 days of the shareholder's demand; failure to file suit may mean that the corporation is bound to pay the shareholder the amount she demanded.
   
   In some states, the shareholder must institute litigation if she and the corporation do not agree on the value of her stock. When the matter is litigated, the courts in most states will appoint an appraiser to assess the value of the stock. For example, the court would assess the value of the shareholder's stock immediately before the company merged or before it sold off all its assets. After the litigation, courts in many states are empowered to award attorney's fees either to or against the corporation depending upon the good faith with which the parties set their estimates of fair value.
   
   
3. Some Exceptions to Appraisal Rights
   
   In most states, however, appraisal seems to be the exclusive remedy unless the action taken was fraudulent or oppressive. The typical argument is that merger or other fundamental change was undertaken not for some legitimate corporate purpose, but to squeeze out minority shareholders. Shareholders in such a case will argue that they should be able to sue to rescind the merger (or other fundamental change) and should not be limited to the right of appraisal. If the fundamental change has already been realized, the shareholders may sue for “rescissory damages, which is a monetary recovery that would put them in the position they would be in had the change not been approved.
   
   It is worth emphasizing that not every objection to a fundamental change will justify a suit for rescission or rescissory damages, indeed, as the Delaware Supreme Court recognized in Weinberger, if the shareholder's complaint is that the financial terms of a cash-out merger are inadequate, appraisal will be her only remedy. States also take differ in approaches as to whether claims of fraudulent or otherwise unlawful behaviour may be addressed in the appraisal proceeding or whether they have to be litigated separately.
   
   Finally, note that the assertion of appraisal rights can creates severe cash drains for the corporation. Thus, it is common for merger and other agreements to provide an “out" if large numbers of shareholders assert their rights of appraisal.
   

SEE ALSO:
Which Items of U.S. Company’s Article of Incorporation Can Be Amended

Reference:
[1] Richard D. Freer. The law of corporations in a nutshell. West Pub.Co, 2020.