The Bull

Tuesday 18

December, 2018 1:37 AM



DICTIONARY : A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Appraisal right

What does it mean?

 

An appraisal right is the statutory right of minority shareholders to have a valuator who is separate from the corporation or a judicial proceeding rule on a stock price to ensure that it is fair and then hold the acquiring corporation to an agreement that honours that price for repurchasing shares. By hindering two companies that are merging into one entity from paying less than the amount of the shareholders’ valuation of the company, an appraisal right serves as a protection policy on behalf of the minority shareholders.

 

How is an appraisal determined?

 

Analysts use a valuation process to determine a business’ or company’s economic value. Independent analysts consider several factors and use a variety of methods to determine the fairest stock price and the general value of the acquired company. When conducting this analysis, they may consider income and cash flow, asset basis and comparable market data models, as well as hybrid and formulaic methods. For instance, an asset-based valuation considers the net asset value of the company, which is the fair market value of the company’s assets after subtracting all its liabilities, to determine the amount of capital that would be required if the company were to be completely rebuilt from scratch.

 

Instances of appraisal rights

 

Most often, minority stockholders invoke appraisal rights to ensure fairness in dealings, such as mergers or consolidations, and to protect their rights. However, appraisal rights may also be applicable in situations where a corporation undertakes a potentially harmful action outside the bounds of normal or expected behaviour. The basic purpose of appraisal rights is to guarantee that shareholders will be fairly and adequately compensated in any event that could challenge their rights in either a merger or any dramatic diversion from the agreed-upon intent.

 

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