Dissenters' Rights: The Effect of Tax Liabilities on the Fair Value of Stock
DePaul Business Law Journal, Vol. 6, p. 77, 1993
25 Pages Posted: 26 Oct 2014
Date Written: 1993
The right of shareholders to dissent from fundamental corporate changes and demand the fair value of their shares is an important protection for minority shareholders nationwide. Unfortunately, the term "fair value" is not clearly defined and is subject to varying interpretations. One important factor is the impact of corporate income tax liability on the fair value ultimately paid to dissenting shareholders. This article will discuss whether the tax consequence of the transaction giving rise to the right to dissent should affect the amount paid to dissenting shareholders. This question will be considered in three contexts. First, transactions which trigger current tax liability; second, transactions which create deferred tax liabilities which are included in the financial statements of the corporation; and third, hypothetical tax costs considered in arriving at the appropriate value of dissenters' shares. This article will show that in light of the history and purposes of dissenters' rights statutes and the traditional elements of fair value, these tax consequences should not affect the value of dissenters' shares.
Keywords: Dissenters' Rights, Tax Liability, Fair Value, Stock
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