What is a shareholder rights plan?
A shareholder rights plan, also known as a “poison pill”, is a defensive corporate law strategy that public companies in Washington use to protect themselves from hostile takeovers. A shareholder rights plan is like a security shield that can be used by a public company in Washington to prevent a hostile takeover from happening. A typical shareholder rights plan would give current shareholders the right to purchase additional shares of the corporation at half the current market value if an outside investor purchases a certain amount of shares. This makes it difficult for the hostile investor to acquire a controlling interest in the company. Shareholder rights plans are designed to give the board of directors of the public company time to negotiate with the investor so that the terms of the investment will be beneficial for all shareholders. The shareholder rights plan is intended to benefit all shareholders by protecting their best interests.
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