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Dissenting Shareholder Rights

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October 31, 2020 | Business Transactions

Dissenting Shareholder Rights 

What if I Disagree with the Sale or Merger of the Corporation?

Most corporate operations are run by its officers and board of directors.  In the event of a major transactional undertaking, however, such as a merger, share exchange, charter amendment, or sale of all or substantially all the assets of the corporation, the shareholders have a right to object.  Such transactions can significantly alter the nature of the company and may be viewed by a shareholder as detrimental to the value of his position.  If you are minority shareholder of a corporation who disagrees with a pending restructural transaction, Bowman Jarashow Law, LLC can assist you in asserting your rights under Maryland law.

How does Maryland Law Protect the Rights of an Objecting Shareholder?

Section 3-202 of the Maryland General Corporation Law (“MGCL”) governs the rights of objecting shareholders (known as “dissenter’s rights” or “appraisal rights” in other jurisdictions).  Objecting shareholders have the right to demand of the corporation an appraisal for the fair market value of their stock and to receive cash payment in exchange for liquidation. [1] In exercising these rights, however, it is important that the objecting shareholder strictly adheres to the procedural requirements to prevent the loss of the appraisal remedy.

An objecting shareholder is only entitled to the appraisal remedy if he files a timely written objection to the proposed transaction, does not vote in favor of the transaction, and makes a written demand for the payment of the fair value of the shareholder’s stock.  These requirements are set forth in MGCL Section 3-203, and failure to comply will bind the shareholder to the terms of the transaction set forth by the corporation.

What if the Corporation Ignores my Demand or I Object to the Valuation?

If the corporation fails to timely issue the cash payment for the fair value of your stock, or you believe that the corporation has undervalued the price of your shares, you have the right to file a lawsuit against the corporation seeking a court-ordered appraisal proceeding to determine the fair market value of your shares.

Is Liquidation My Only Option?

While the remedy for an objecting shareholder is generally limited to a cash payment for the fair value of his stock, the statutory appraisal proceeding is not an exclusive remedy.  Maryland courts have provided injunctive or other appropriate relief in certain compelling circumstances, such as cases of fraud, illegal purpose, or other wrongful conduct by the majority or controlling shareholders of the corporation. See Twenty Seven Tr. v. Realty Growth Invs., 533 F. Supp. 1028, 1036 (D. Md. 1982).

We Can Help

If you believe a potential corporate transaction will be detrimental to the interests of the corporation and your interests as a shareholder, you are entitled to protection.  It is essential to act quickly to ensure you receive an equitable remedy under the law.  Bowman Jarashow Law, LLC is recognized among the top law firms in Maryland and provides the highest level of attention in pursuing complex litigation and business matters.


[1] Section 2-202 provides some exceptions to this right.  For example, a shareholder may not demand fair value if the corporate charter prohibits shareholders from exercising objecting shareholder rights or the stock is listed on a national securities exchange.

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