Appraisal Right

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DEFINITION of 'Appraisal Right'

The statutory right of a corporation's minority shareholders to have a fair stock price be determined by a judicial proceeding or independent valuator, and the obligation for the acquiring corporation to repurchase shares at that price. An appraisal right is a protection policy for shareholders, preventing corporations involved in a merger from paying less than the company is worth to the shareholders.

BREAKING DOWN 'Appraisal Right'

Multiple valuation methods are often used in determining the fair stock price and value of the acquired company, including asset-based methods, income or cash flow methods, comparable market data models, and hybrid or formula methods. While most occurrences of appraisal rights are based on consolidation or mergers, it may also apply to instances when the corporation takes any extraordinary action that shareholders deem harmful to their interests. In mergers and acquisitions, appraisal rights guarantee that shareholders are adequately compensated for being overridden in a merger or acquisition.

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