Appraisal Week Concludes: Contracting Out

Is there space for private ordering?

A couple of years ago, a student in Mergers & Acquisitions asked “can you contract out of appraisal rights?” Answering that question proved quite challenging.

Appraisal rights are often addressed in purchase agreements. For example, acquirers sometimes “demand appraisal-rights closing conditions in their merger agreements. An appraisal-rights closing condition places a maximum limit on the percentage of common stock that can demand appraisal before the buyer can refuse to close.”¹ In addition, targets sometimes offer a representation that appraisal rights are not available in connection with the transaction.

None of this, however, speaks to the query. The question is whether one can contract around appraisal so as to deny appraisal rights to shareholders who are entitled to them by statute. Before we can answer that query, however, we need to further refine it. Could the corporation include a provision in the articles of incorporation eliminating or limiting appraisal rights? Could the shareholders enter into a shareholder agreement that limits or eliminates appraisal rights? Does it matter whether we are talking about a public or a closely held corporation?

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