When a minority shareholder sues for involuntary dissolution of a corporation, Corporations Code section 2000, subdivision (c) gives the the corporation, or the holders of 50 percent or more of the voting power of the corporation a right to purchase the plaintiff’s shares as an alternative to litigating the action for involuntary dissolution. “Under those circumstances, the purchasing shareholders may avoid the dissolution of the corporation and the appointment of any receiver by buying the plaintiff’s shares. Nothing in Section 2000, subdivision (a) provides for a buyout independent of a pending involuntary dissolution suit.” (Kennedy v. Kennedy (2015) 235 Cal.App.4th 1474, 1481.) In short, the buyout rights under Section 2000 depend entirely on the existence of an action for involuntary dissolution.
To initiate the buyout process under Section 2000, the purchasing shareholders must file a motion to invoke their buyout rights and appoint an appraiser. The plaintiff can avoid the buyout by dismissing the dissolution action before the court grants the motion for a buyout. However, once the court makes an order to begin the Section 2000 buyout, the parties cannot change their minds. Plaintiffs have to sell, and the purchasing shareholders have to buy.
Section 2000 requires the purchasing shareholders to buyout the plaintiff’s shares at their “fair value.” (§ 2000, subd. (a).) The statute defines “fair value” as the “liquidation value as of the valuation date but taking into account the possibility, if any, of sale of the entire business as a going concern in a liquidation.” (Go v. Pacific Health Services, Inc. (2009) 179 Cal.App.4th 522, 532.) If the parties cannot agree on a valuation, the trial court shall appoint three disinterested appraisers to appraise the fair value of the shares. (§ 2000, subd. (c).) “The order shall prescribe the time and manner of producing evidence, if evidence is required. The award of the appraisers or of a majority of them, when confirmed by the [trial] court, shall be final and conclusive upon all parties.” (Ibid.)
When conducting the appraisals under Section 2000, the appraisal methodology is often controlled by the statute. For example, the appraisals must include the value of any pending derivative lawsuits and they cannot apply any control discount to reduce the purchase price of the plaintiff’s shares. Goles v. Sawhney, (2016) 5 Cal.App.5th 1014.
After making their appraisals, the appraisers will attempt to reach a consensus as to the value of the shares. If at least two appraisers reach a consensus, the court can confirm the consensus value, or the court may reject the consensus value and make a new determination itself.