What is a shareholder rights plan?

A shareholder rights plan, also known as a “poison pill,” is a contractual agreement between a company and its shareholders that is intended to provide protection to a company’s stockholders from hostile takeovers. This type of plan is especially useful for publicly held companies, as it gives a company time to respond to a hostile takeover bid and make decisions regarding corporate structure and financial well-being. In South Carolina, a shareholder rights plan grants shareholders certain rights that can act as a deterrent to hostile takeovers. Under a shareholder rights plan, if a potential hostile acquirer buys too much company stock, the plan will “trigger” and grant specific rights to existing shareholders. These rights may include the right to purchase additional company stock at a discounted rate, the right to purchase shares at a premium price, or the right to receive cash or other compensation. With a shareholder rights plan, a company’s existing shareholders can protect their investments and, depending on the specific terms of the plan, can gain some financial benefit from a hostile takeover bid. This type of corporate law provides an additional layer of protection for shareholders and encourages potential acquirers to negotiate friendly deals, instead of pursuing hostile transactions.

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