Dissent Rights (Shareholder Appraisal)

Most shareholder votes bind everyone once the required majority approves. Dissent rights are the exception for decisions that change the basic bargain a shareholder bought into. A shareholder who disagrees with a qualifying resolution can, by following the statutory procedure, step out and be paid in cash instead of being carried into a business that has been amalgamated, moved to another jurisdiction or sold.

The right is the counterweight to the special resolution. A two-thirds majority can impose a fundamental change on the minority, but it cannot force the minority to stay invested in the result. The cost of that exit falls on the corporation, which pays the dissenter the fair value of their shares. The right sits in section 185 of Ontario's Business Corporations Act (OBCA) and in section 190 of the Canada Business Corporations Act (CBCA).

A holder of shares of a class or series entitled to vote on the resolution may dissent if the corporation resolves to:

• Amend its articles to add, remove or change restrictions on the issue, transfer or ownership of a class or series of shares
• Amend its articles to add, remove or change restrictions on the business it may carry on or the powers it may exercise
• Amalgamate under the long-form procedure in sections 175 and 176 (a short-form amalgamation of a parent with its wholly owned subsidiaries, or of sister subsidiaries, carries no dissent right)
• Be continued into another jurisdiction, or under the Co-operative Corporations Act or the Not-for-Profit Corporations Act, 2010
• Sell, lease or exchange all or substantially all its property outside the ordinary course of business
• Amend its articles in a way that gives a class or series a separate vote under section 170, such as changing the rights attached to that class or creating a new class ranking equal or superior to it

The class-change right applies even if the corporation has only one class of shares. Dissent can also arise in an offering corporation's going-private transaction, and in a court-approved arrangement where the court's order permits it. The CBCA list is similar and adds going-private and squeeze-out transactions. Our guides to corporate amalgamation and shareholder approval for selling business assets show where dissent fits in those deals.

The procedure is strict. Under the OBCA, a shareholder who misses the objection, the demand or the certificate deadline has no claim under section 185.

1. Object before the vote. Send the corporation a written objection at or before the meeting. Voting against the resolution, or signing a proxy, is not an objection. The objection is excused only if the corporation did not give notice of the meeting's purpose or of the right to dissent.
2. Receive notice of adoption. Within 10 days after the resolution passes, the corporation must notify each objector who did not vote in favour or withdraw, setting out the dissent procedure.
3. Demand payment. Within 20 days after receiving that notice, or after learning the resolution passed, send a written demand stating your name and address, the number and class of shares, and a demand for fair value. From then on you have no shareholder rights except payment, unless the demand is withdrawn in the limited cases the Act allows or the corporation abandons the action.
4. Send in certificates. Within 30 days after the demand, deliver any share certificates to the corporation, which endorses them and returns them.
5. Corporation's offer. Within seven days after the later of the action taking effect and receipt of the demand, the corporation must offer the amount its directors consider fair value, with a statement showing how it was calculated. Offers for the same class must be on the same terms; an accepted offer is paid within 10 days, and an offer lapses if not accepted within 30 days.
6. Court if there is no deal. If no offer is made or accepted, the corporation may apply to court to fix fair value within 50 days after the action takes effect; if it does not, the dissenter may apply within a further 20 days. The dissenter does not have to post security for costs.

A shareholder must dissent for all the shares of a class held for one beneficial owner; partial dissent is not allowed.

Fair value is fixed as of the close of business on the day before the resolution was adopted, so the shares are valued as they stood before the vote. The OBCA does not define fair value. It is related to, but not automatically the same as, fair market value: whether a minority block should be discounted for lack of control or marketability is a contested question the court decides on the evidence, and the court may appoint appraisers to help it. The court can also allow a reasonable rate of interest from the date the action takes effect until payment.

The corporation pays, not the other shareholders, and it cannot pay if there are reasonable grounds to believe it is, or after paying would be, unable to pay its liabilities as they become due, or that the realizable value of its assets would fall below its liabilities. In that case the dissenter can withdraw and be reinstated as a shareholder, or remain a claimant to be paid when the corporation lawfully can, ranking behind creditors but ahead of shareholders in a liquidation. Dissent does not displace the shareholder's other rights; the oppression remedy for minority shareholders addresses unfair conduct rather than price, and it can fit better where the complaint is about how the decision was made.

The statute allows only narrow opt-outs. For an Ontario corporation, the articles can provide that a class has no dissent right on three kinds of class-vote amendments: changing the maximum number of authorized shares, an exchange, reclassification or cancellation of the class, or creating a new equal or superior class. On the corporation's application, a court can also declare that dissent rights will not arise from a proposed action, and amendments made by a court-ordered reorganization carry no dissent right.

In private companies, the more common tool is contractual. A shareholder agreement or unanimous shareholder agreement often pairs a drag-along right with each shareholder's promise to vote for an approved sale and not to exercise dissent rights. That promise binds the shareholders who gave it as a matter of contract; it does not rewrite section 185. Whether a court will hold a shareholder to it turns on the wording, so it should be stated expressly, cover each type of transaction that could trigger dissent, and bind future shareholders through a joinder. Where a buyer needs every share and no such promise exists, the route is usually a squeeze-out, which brings its own dissent and fairness safeguards.

Copperleaf Print Ltd., a Mississauga commercial printer governed by the OBCA, agrees to sell substantially all its assets to a national competitor for $6 million. Its common shares are held by Anil Iyer (60%), Lena Petrosyan (25%) and Tom Oyelaran (15%). Tom thinks the price is too low and delivers a written objection before the meeting. The special resolution passes with 85% of the votes cast.

Within 10 days the company sends Tom notice of adoption, and 12 days later he sends his demand for fair value. After closing, the board offers $540,000 for his shares, attaching its calculation. Tom's chartered business valuator puts fair value at $720,000, measured at the close of business on the day before the vote and without a minority discount. Tom rejects the offer, and the company applies to court inside the 50-day window. After both sides exchange expert reports, they settle at $630,000 before the hearing, and the company pays from the sale proceeds once the board confirms the solvency tests are met.