3.3.4.2.3 Charter amendments

The Principles and the RMBCA provide a broader range of appraisal triggers than the Delaware statute, not only by including the disposition of assets, but also by encompassing charter amendments, and parties can include on the trigger list other situations they agree upon.1 In the Delaware corporate statute, the availability of appraisal rights in asset dispositions and charter amendments is subject to private ordering.2

Previously, the provision in RMBCA 11.02 (4) paralleled 7.21 (a) of the ALI Principles, namely that shareholders who are directly and adversely affected by the charter amendment are entitled to appraisal.

The amendments in 2005 to Section 11.02 (4) of the RMBCA limited the scope of this category to the effectuation of a reverse stock split where the minority shareholders can be cashed out, and their interests in the corporation are eliminated, as in the case of a cash-out merger.3 Consequently, the scope of statutory triggers in case of charter amendments is narrower than that of the previous versions of the RMBCA and is also narrower than that of the ALI Principles. Such a narrowing down does not necessarily mean that the RMBCA disagrees with the Principles that amendments other than reverse stock splits can also have significant and adverse impact on the minority shareholders. It attempts rather to reflect a policy judgment that more freedom is given to the corporation and its members to decide their actual needs for appraisal in specific situations.4 That is why a catch-all provision is provided in 13.02 a (5) that any other amendment to the articles of incorporation, merger, share exchange or disposition of assets to the extent provided by the articles of incorporation, bylaws or a resolution of the board of directors allows appraisal rights. If exiting the company is statutorily allowed without due limitations, legislators will be afraid of making arbitrary judgments on the management of the business and adverse impact on others who have an interest in the company.5 In the amended version, a corporation may voluntarily choose to grant appraisal rights with regard to different types of amendments and transactions it deems necessary when situations are not specifically laid down in the statute. In line with this, corporate statutes should include charter amendments and encourage the specification of further situations in the articles of incorporation or bylaws or board resolutions to provide better protection for minority shareholders.