Appraisal Rights During Mergers and Sales

By Ruby Jo "Catie" Smith December 23, 2024 Posted in Community Association Law Share

Under certain circumstances, corporations or limited liability companies can choose to eliminate minority equity holders’ interests through merger or sale. During such a merger or sale, minority equity holders are protected by the Florida Statutes through appraisal rights.

Appraisal rights were developed in an effort to ensure minority interest holders received compensation for their interests. Prior to the implementation of these rights, mergers and sales had to be unanimous; however, businesses could find themselves unable to make profitable sales as a disgruntled minority interest holder may refuse to withhold their consent. Appraisal rights were developed to provide a fair and practical way to eliminate the minority equity holder’s interest while allowing mergers and sales to continue.

Florida Statute § 607.1302 provides that a shareholder is entitled to appraisal rights, and to obtain payment of the “fair value” of their shares. Florida Statute § 605.1006 governs the appraisal rights of members in a limited liability company; members are also entitled to the “fair value” of their interests.

The first method of determining a fair value is for the company and the member to agree on the value. If the company and member cannot agree on a “fair” price, the minority member can file an action asking the court to determine the fair value of the interest. The company will provide evidence in support of the company’s valuation, and the minority shareholder will do the same for his or her valuation.

Each party will want to hire a business valuation expert to perform an in-depth valuation of the company. If your company is involved in a unique or rare business, you will want to ensure the valuation expert you hire has experience with your type of business. Otherwise, you may be selling your interests short.