Shareholder Exit Signs on American and European Highways: Under Construction

This article discusses legal exit rights (referred to in the United States as appraisal rights and in civil law Europe as withdrawal rights), in the United States, France and Romania. We selected these three countries because they are representative of strong, average and respectively weak capital markets, with varying levels of shareholder activism and litigation (high, normal and respectively low). Additionally, the selection of these countries enabled us to compare the structure of legal exit rights in the United States and in Europe and, within Europe, between two politically, economically and culturally sister countries (France and Romania) which should be so close legally but yet we conclude are so far apart, at least with respect to legal exit rights. Until recently, this topic had not received much attention, in literature or in practice. Now, in all three countries, it is raising passionate debates, albeit for different reasons, and we observed a recent and significant increase of the exercise of legal exit rights. In the United States, a phenomenon of “appraisal activism” has emerged, led by specialized and aggressive hedge funds. In France, shareholder activism in general is on the rise and new regulations or proposals pertaining to legal exit rights have recently been adopted or are currently being debated. In Romania, the second most important stock market is currently being dissolved, which triggered potential legal exit rights at more than 800 public companies. The scope and procedures applicable to the exercise of legal exit rights differ greatly in the three countries analyzed. That was easy to conclude. While comparative law scholarship often has a tendency to emphasize differences between jurisdictions, we join an emerging trend in comparative law scholarship by choosing to focus on similarities. Consequently, the more difficult part of our analysis was to bring together, under an umbrella of common terminology and concepts, very different institutions having separate sources and historical backgrounds. We offer a common language and a general analytic framework for legal exit rights, from the pragmatic perspective of current practitioners in each of the countries surveyed. In doing so, a certain extent of deliberate imprecision and generalization were unavoidable. At the end of this process and within the analytic framework created, we found that numerous similarities in the regulation of legal exit rights exist in these three countries. We explored the identified similarities, which should allow each country to benefit from the experience of the others. In particular, our analysis indicated that the scope of legal exit rights for public companies is not correlated with the strength of the capital markets and that shareholders are granted a broader scope of legal exit rights in private companies than in public companies (with the exception of France). It also indicated that there is extreme variation regarding exit rights for limited liability companies (almost exclusively contractual exit rights in the United States and France in contrast with broad legal exit rights in Romania) but that there is generally less state intervention and more contractual freedom regarding the determination of the fair price with respect to companies other than joint stock companies. Moreover, it indicated that the frequency of use of legal exit rights is not proportional with the level of shareholder litigation.