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CALIFORNIA CORPORATE & SECURITIES LAW

The Right To Dissent And Fractional Shares

I’ve devoted several posts to how California’s General Corporation Law deals with fractional shares.  Nevada’s approach to fractional shares is somewhat different.  For example, Nevada permits rounding up to a full share in all cases.  NRS 78.205(2)(b).  However, if a Nevada corporation elects to cash out or issue scrip for fractional shares, the stockholders may have a right to dissent pursuant to NRS 92A.300 – 92A.500.  Dissenters’ rights are available with respect to any proposed corporate action that would result in only money being paid or scrip being issued to stockholders who:

  • Before the proposed corporate action becomes effective, hold 1% or more of the outstanding shares of the affected class or series; and
  • Would otherwise be entitled to receive a fraction of a share in exchange for the cancellation of all their outstanding shares.

NRS 78.205(3).

Note that the right is determined by the holdings of the stockholders and not each stockholder.  For example, assume that 2 stockholders each hold .6% of a corporation’s outstanding shares and would otherwise be entitled to receive a fractional share in cancellation of all of their outstanding shares. Each would have the right to dissent because stockholders holding at least 1% of the outstanding shares would otherwise be entitled to receive a fractional share.

If a Nevada corporation should issue a fractional share, the statute provides no guidance on the holders rights vis-à-vis voting or distributions.  Compare Cal. Cor. Code § 407 (“A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon and to participate in any of the assets of the corporation in the event of liquidation. “) and 8 Del. Code § 155.

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