Shareholders owning a minority block of stock in a corporation generally lack the ability to prevent transactions involving fundamental changes to the corporation or the nature of their investment in it.
However, when fundamental corporate change is forced upon minority shareholders against their will, Minnesota law allows shareholders to “dissent” from the transaction and to exercise statutory “dissenter’s rights” designed to protect them from what they view to be adverse effects of such change. Assuming that dissenting shareholders jump through the proper procedural hoops to perfect their dissenter’s rights, the primary remedy to which they are entitled comes in the form of a “fair value” buyout of their shares. Rather than be trapped as an unwilling shareholder in a company that has gone through change that they found to be unacceptable, the dissenting shareholders are entitled to have their shares purchased according to a valuation formula deemed by law to be fair.
Transactions that implicate dissenter’s rights of shareholders include:
- Merger transactions.
- Stock exchanges with an acquiring entity.
- Conversion of the corporation into a limited liability company.
- Amendments to articles of incorporation that materially and adversely affect rights or preferences of shares.
- Certain sales or dispositions of substantially all of a corporation’s assets.
Because of Minnesota’s dissenter’s rights statute, a shareholder is not required to go along with such transactions, but instead can “dissent” and thereby be entitled to tender his or her shares in return for a payment of “fair value.”