What is a shareholder rights plan?

A shareholder rights plan, also known as a “poison pill,” is a corporate law tool that companies use to protect against hostile takeovers. Under a shareholder rights plan, a company creates a set of provisions that would allow existing shareholders to purchase additional shares of the company at a discounted rate if a hostile takeover is attempted. This would dilute the value of the shares held by the hostile takeover bidder and make it more difficult for them to acquire a controlling stake in the company. The purpose of a shareholder rights plan is to give the company more time to find other options, like a friendly takeover or a merger, to make sure that the shareholders are not taken advantage of by a hostile bidder. It also gives the board of directors more time to assess the offer and make sure it is in the best interests of the shareholders. In California, the laws relating to shareholder rights plans are still evolving as the courts continue to interpret them. Companies should make sure that they are aware of the current laws and regulations in their state in order to protect their shareholders.

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