The appraisal right lets a stockholder who dissents from certain fundamental corporate actions withdraw from the corporation and demand payment of the fair value of their shares. It is available in specific instances the Revised Corporation Code lists — such as an amendment to the articles that changes or restricts the rights of shareholders or authorizes preferences, a sale of all or substantially all corporate assets, a merger or consolidation, and an extension or shortening of corporate term. The stockholder must have voted against the act, then make a written demand within thirty days, and surrender the shares. If the parties disagree on value, it is fixed by three appraisers. Once exercised, the stockholder's rights are suspended except the right to be paid the fair value.
A stockholder outvoted on a major corporate decision is not always stuck. In certain cases, the law lets them cash out at fair value through the appraisal right.
What the Appraisal Right Is
The appraisal right is the right of a dissenting stockholder to withdraw from the corporation and demand payment of the fair value of their shares when the corporation takes certain fundamental actions the stockholder opposes. It is an exit remedy for those who do not want to be bound by a major change.
When It Is Available
It arises only in the specific instances the Revised Corporation Code provides, notably:
- An amendment to the articles of incorporation that changes or restricts the rights of shareholders or authorizes preferences superior to theirs, or extends/shortens corporate term;
- The sale, lease, or disposition of all or substantially all corporate assets;
- Merger or consolidation; and
- Investment of funds in another business or purpose, in the cases provided.
Outside these instances, there is generally no appraisal right.
The Strict Procedure
The right must be exercised exactly as prescribed or it is lost:
- The stockholder must have voted against the corporate act;
- They must make a written demand for payment within thirty (30) days after the vote;
- They must surrender their stock certificate(s) for notation; and
- If demand is not made within the period, the right is deemed waived.
Fixing the Fair Value
The value is the fair value as of the day before the vote (excluding the appreciation or depreciation caused by the action). If the corporation and the stockholder cannot agree, the value is determined by three (3) disinterested appraisers — one chosen by each side and the third by the two so chosen — whose majority decision is final.
Effect and Payment
From the time of demand until the corporation pays, the stockholder's rights are suspended except the right to receive the fair value. Payment is generally made only if the corporation has unrestricted retained earnings to cover it. If the stockholder is not paid within the period after the value is fixed, their rights may be restored.
Practical Takeaways
- The appraisal right lets a dissenting stockholder be paid fair value and exit;
- It applies only to specific fundamental actions (amendments restricting rights, asset sales, mergers, term changes);
- Follow the strict procedure — vote against, demand in writing within 30 days, surrender the shares — or the right is lost.
Frequently Asked Questions
What is the appraisal right? It is the right of a stockholder who dissents from certain fundamental corporate actions to withdraw from the corporation and demand payment of the fair value of their shares.
When can a stockholder exercise it? Only in specific instances, such as an amendment restricting shareholder rights or extending/shortening the term, a sale of all or substantially all assets, or a merger or consolidation. Outside these, there is generally no appraisal right.
What is the procedure? The stockholder must have voted against the act, make a written demand for payment within thirty days of the vote, and surrender the stock certificates. Failing to demand within the period waives the right.
How is the fair value determined? It is the fair value as of the day before the vote, excluding the effect of the action. If the parties cannot agree, three disinterested appraisers fix it, and their majority decision is final.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.