COMMENT

Source: Model Act, § 13.23. This replaces former § 14-2-251(d) & (e).

The demand for payment required by Section 14-2-1323 is the definitive statement by the dissenter. In the case of a transaction involving a vote by shareholders, it is a confirmation of the "intention" expressed earlier; in the case of any other transaction, it is the person's first statement of position. In either event, the filing of these demands informs the corporation of the extent of the potential cash drain if it proceeds with the proposed corporate action.

The record date for approval or the date of announcement of corporate action is the cut-off date for determining who has dissenters' rights under this article. Former § 14-2-251(e) only required a dissenter to state his or her name, address, number, classes and series of shares as to which he or she dissented and a demand for payment of fair value.

Section 14-2-1323(a) also requires a person who files a demand for payment to deposit his share certificates as directed by the corporation in its dissenters' notice. The deposit of share certificates is necessary to prevent dissenters from giving themselves a 30-day option to take payment if the market price of the shares goes down, but sell their shares on the open market if the price goes up. If this kind of speculation were possible, all sophisticated investors might be expected to file demands that they would not intend to carry through unless the price should fall. If the shares are not represented by certificates, the corporation can prevent speculation by restricting their transfer, as authorized by Section 14-2-1324.

With respect to certificated shares, this provision differs from former law in that the certificates are "deposited" for retention, rather than "submitted for notation." Former § 14-2-251(e) required dissenters to submit certificates at the time of filing their notice of election to dissent or within 30 days thereafter. The corporation was required to note the election to dissent and to return the certificate to the shareholder. This change assumes that the corporation will retain the certificates unless it fails to effectuate the proposed corporate action; it thus avoids the need of sending the certificates back to the shareholders, only to be surrendered again when payment is made.

A shareholder who deposits his shares retains all other rights of a shareholder until those rights are modified by effectuation of the proposed corporate action. See Section14-2-1323(b). Former § 14-2-251(d) was much more detailed, and limited dissenters' rights by providing that a notice of election to dissent terminates the shareholder's rights except to receive payment.

Subsection (c) provides that a person who fails to file the demand for payment or does not deposit his share certificates as required by Section14-2-1323(a) loses his status as a dissenter entitled to payment for his shares. Former § 14-2-251(e) provided that if an electing shareholder failed to make a timely tender of his certificate, the corporation could cancel his dissenter's rights by written notice within 45 days of the date of filing of the notice of election to dissent. There was a final out: if the shareholder could show "good cause," (not defined in the statute) dissenters' rights could be preserved. The Code creates a bright line rather than leave the matter uncertain for extended periods.

Cross-References Dissenters' notice, see § 14-2-1322. Dissenters' rights as exclusive remedy, see § 14-2-1302. Effective date of notice, see § 14-2-141. Share transfer restrictions, see §§ 14-2-627 &14-2-1324.

JUDICIAL DECISIONS

RESEARCH REFERENCES