No dissenters' rights: Overview, definition, and example
What are no dissenters' rights?
No dissenters' rights refer to a provision in a corporate transaction, such as a merger or acquisition, that prevents shareholders from exercising the right to object to the transaction and demand the company buy back their shares at a fair value. In many jurisdictions, shareholders have dissenters' rights (also known as appraisal rights) that allow them to protest certain corporate actions, such as a merger, and require the company to buy back their shares at an appraised fair market value. However, when a contract or agreement includes a "no dissenters' rights" clause, it means that shareholders who disagree with the transaction cannot exercise this right and are bound by the outcome of the deal.
This provision is often included in the terms of a merger or acquisition to simplify the process by eliminating potential challenges or disputes from shareholders who do not agree with the proposed transaction. By limiting or excluding dissenters' rights, companies can move forward with the transaction without worrying about shareholders opting out and demanding compensation for their shares.
Why are no dissenters' rights important?
The inclusion of a "no dissenters' rights" clause is important because it streamlines the process of completing a corporate transaction, such as a merger, by removing the potential for shareholder objections and disputes. This helps the company avoid delays, litigation, and the complexity of negotiating buybacks with dissenting shareholders.
For businesses involved in mergers or acquisitions, having no dissenters' rights simplifies the transaction and provides certainty that the deal will proceed without being hindered by objections from minority shareholders. This is particularly important in situations where the company wants to move forward with a transaction quickly and with minimal disruption.
Understanding no dissenters' rights through an example
Imagine a company, Company A, is being acquired by Company B. Shareholders of Company A are typically allowed to dissent if they do not agree with the terms of the merger and demand that the company buy back their shares at a fair value. However, the acquisition agreement includes a no dissenters' rights clause, which means that even if some shareholders disagree with the deal, they cannot force Company A to repurchase their shares. These dissenting shareholders must either accept the terms of the deal or sell their shares as part of the transaction.
In this case, the absence of dissenters' rights ensures that the acquisition can proceed without the risk of shareholder objections delaying or complicating the process.
Example of no dissenters' rights clause
Here’s an example of how a no dissenters' rights clause might appear in an agreement:
"The Parties agree that in connection with this merger, no shareholder shall have dissenters' rights or appraisal rights under applicable law. All shareholders of the Company shall be required to accept the terms of the merger as set forth in this Agreement, and no shareholder shall be entitled to demand payment for their shares or object to the transaction."
Conclusion
No dissenters' rights is a provision often included in corporate transactions to prevent shareholders from objecting to the deal and demanding buybacks of their shares. It simplifies the process of completing mergers and acquisitions by eliminating the potential for disputes or delays caused by dissenting shareholders. For companies, this provision provides certainty and efficiency in executing business transactions, allowing them to move forward without the complication of objections from minority shareholders.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.