Dissenters' Rights in Colorado
| Publication year | 1989 |
| Pages | 1101 |
| Citation | Vol. 06 No. 1989 Pg. 1101 |
1989, June, Pg. 1101. Dissenters' Rights in Colorado
Under the Colorado Corporation Code, the shareholders of the disappearing corporation in a merger,(fn1) the acquired corporation in a share exchange(fn2) or the corporation which sells its assets in other than the regular course of business(fn3) are entitled to vote on the proposed transaction. If the proposed corporate action is approved by the necessary shareholder vote and a shareholder does not wish to participate as a shareholder in the resulting entity, the shareholder has the right to dissent from these corporate actions and to obtain payment for the "fair value" of his or her shares.(fn4)
Therefore, when planning a transaction from which shareholders will have the right to dissent, a lawyer representing a corporation should evaluate the likelihood and potential cost of dealing with dissenting shareholders. The lawyer may even wish to advise a corporate client to consider conditioning the transaction on a fixed maximum number of shareholders dissenting from the transaction. As will be seen, a lawyer representing a dissenting shareholder also has a substantial task in evaluating and managing that client's case.
This article attempts to assist lawyers dealing with both sides of the issue of dissenters' rights by providing an overview of the procedural and substantive provisions of the dissenters' rights statutes, including a discussion of the problems of proof of "fair value."
Once a shareholder decides to exercise his or her rights under CRS §§ 7-4-123 and 124 (the "dissenters' rights statutes"), an intricate series of steps must be taken by both the corporation and the shareholder. If the procedural provisions of the statutes are not followed carefully, the consequences may be severe. For instance, the shareholder may lose dissenters' rights or be required to accept the corporation's remittance for his or her share based solely on its estimate of fair value. Similarly, if the corporation is not diligent, it may be forced to pay the entire amount demanded by the shareholder.
The procedures are initiated by the corporation when it sends out notice of the shareholders meeting at which a proposed corporate action will be considered.(fn5) Shareholders who wish to dissent from the transaction must file a notice of intention to dissent with the corporation prior to any vote on the action and must not vote in favor of the transaction.(fn6) If the action is approved by the necessary shareholders vote, the corporation must send to the dissenting shareholders directions for demanding payment for their shares and for depositing their certificates.(fn7)
If a shareholder deposits his or her certificates and demands payment in accordance with this notice, the corporation must remit to the dissenting shareholder its estimate of the fair value of the shareholder's shares.(fn8) A dissenting shareholder who is not satisfied with the corporation's estimate of fair value has thirty days to demand supplemental payment of the difference between the amount received and the amount he or she believes to be the fair value of the shares.(fn9) After receiving a demand for supplemental payment, the corporation has sixty days to file a petition requesting the court to determine the fair value of the dissenting shareholder's shares.(fn10)
If the corporation and the dissenting shareholders are able to negotiate successfully each of the procedural hurdles set forth in the dissenters' rights statutes, the district court must then determine the fair value of the dissenters' shares.(fn11) The court's jurisdiction is plenary and exclusive. However, the court may appoint one or more persons as appraisers to receive evidence and recommend a decision on fair value.(fn12) During the course of the appraisal proceedings, the dissenting shareholders are entitled to discovery in the same manner as in other civil suits.(fn13)
Each dissenting shareholder is entitled to judgment for the excess, if any, of the fair value of his or her shares over the amount previously remitted by the corporation, plus interest.(fn14) Therefore, the crux of the dissenters' rights statutes
The dissenters' rights statutes define "fair value" as:
the value of the shares immediately before the effectuation of the corporate action to which the...
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