Dissenters’ Rights

Chapter 13 of Division 1 of Title 1 of the Corporations Code deals with dissenters’ rights under the general corporation law in California.

Section 1300 provides that, if the approval of the outstanding shares of a corporation is required for a reorganization, each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the shareholder which are dissenting shares as defined in law. The terms “dissenting shares” and “dissenting shareholder” are defined.

Section 1301 states that, if in the case of a reorganization, any shareholders of a corporation have a right to require the corporation to purchase their shares for cash, that corporation must mail to each of those shareholders a notice of the approval of the reorganization by its outstanding shares within 10 days after the date of that approval with specified information.

Section 1302 explains that, within 30 days after the date on which notice of the approval by the outstanding shares or the notice was mailed to the shareholder, the shareholder is required to submit to the corporation at its principal office the shareholder’s certificates representing any shares which the shareholder demands that the corporation purchase, to be stamped or endorsed with a statement that the shares are dissenting shares.

Section 1303 states that, if the corporation and the shareholder agree that the shares are dissenting shares and agree upon the price of the shares, the dissenting shareholder is entitled to the agreed price with interest at the legal rate on judgments from the date of the agreement. Any agreements fixing the fair market value of any dissenting shares as between the corporation and the holders is to be filed with the secretary of the corporation.

Section 1304 says that, if the corporation denies that the shares are dissenting shares, or the corporation and the shareholder fail to agree upon the fair market value of the shares, then the shareholder demanding purchase of the shares as dissenting shares or any interested corporation, within six months after the date on which notice of the approval by the outstanding shares was mailed to the shareholder, may file a complaint in the superior court of the proper county praying the court to determine whether the shares are dissenting shares or the fair market value of the dissenting shares or both or may intervene in any action pending on such a complaint.

Section 1305 specifies that, if the court appoints an appraiser or appraisers, they must proceed to determine the fair market value per share. Within the time fixed by the court, the appraisers, or a majority of them, must make and file a report in the office of the clerk of the court. The report is to be submitted to the court and considered on the evidence as the court considers relevant. If the court finds the report reasonable, the court may confirm it.

Section 1306 provides that, in order to prevent the payment to any holders of dissenting shares of their fair market value, they are to become creditors of the corporation for the amount thereof together with interest at the legal rate on judgments until the date of payment, but subordinate to all other creditors in any liquidation proceeding.

Section 1307 specifies that cash dividends declared and paid by the corporation upon the dissenting shares after the date of approval of the reorganization by the outstanding shares  and prior to payment for the shares by the corporation are to be credited against the total amount to be paid by the corporation therefor.

Section 1308 says that holders of dissenting shares continue to have all the rights and privileges incident to their shares, until the fair market value of their shares is agreed upon or determined. A dissenting shareholder may not withdraw a demand for payment unless the corporation consents.

Section 1309 explains that dissenting shares lose their status as dissenting shares and the holders thereof cease to be dissenting shareholders and cease to be entitled to require the corporation to purchase their shares upon the happening of any of four specified conditions occur.

Section 1310 states that, if litigation is instituted to test the sufficiency or regularity of the votes of the shareholders in authorizing a reorganization, any proceedings must be suspended until final determination of such litigation.

Section 1311 says that this chapter does not apply to classes of shares whose terms and provisions specifically set forth the amount to be paid in respect to such shares in the event of a reorganization or merger.

Section 1312 provides that no shareholder of a corporation who has a right under this chapter to demand payment of cash for the shares held by the shareholder has any right at law or in equity to attack the validity of the reorganization or short-form merger, or to have the reorganization or short-form merger set aside or rescinded, with exceptions.

Section 1313 explains that a conversion is to be deemed to constitute a reorganization for purposes of applying the provisions of this chapter.