CO Code § 7-113-101 (2021)
2021 Colorado Code|Title 7 - Corporations and Associations|Article 113 - Appraisal Rights|Part 1 - Right to Appraisal and Payment for Shares|§ 7-113-101. Definitions

 As used in this article 113, unless the context otherwise requires:    “Affiliate” means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another person or is a senior executive of the other person. For purposes of section 7-113-102 (2)(d), a person is deemed to be an affiliate of its senior executives.    “Corporation” means the issuer of the shares held by a shareholder demanding appraisal and, for matters covered in sections 7-113-203 to 7-113-401, includes the surviving entity in a merger.    “Fair value” means the value of the corporation's shares determined:   Immediately before the effectuation of the corporate action to which the shareholder objects;    Using customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal; and    Without discounting for lack of marketability or minority status except, if appropriate, for amendments to the articles pursuant to section 7-113-102 (1)(e).       “Interest” means interest, from the effective date of the corporate action until the date of payment, at the legal rate as specified in section 5-12-101.    “Interested transaction” means a corporate action described in section 7-113-102 (1), other than a merger pursuant to section 7-111-104, involving an interested person in which any of the shares or assets of the corporation are being acquired or converted. As used only in this subsection (5):     “Beneficial owner” means any person that, directly or indirectly, through any contract, arrangement, or understanding, other than a revocable proxy, has or shares the power to vote, or to direct the voting of, shares; except that a member of a national securities exchange is not deemed to be a beneficial owner of securities held directly or indirectly by it on behalf of another person solely because the member is the record holder of the securities if the member is precluded by the rules of the exchange from voting without instruction on contested matters or matters that may affect substantially the rights or privileges of the holders of the securities to be voted. (a) (I) “Beneficial owner” means any person that, directly or indirectly, through any contract, arrangement, or understanding, other than a revocable proxy, has or shares the power to vote, or to direct the voting of, shares; except that a member of a national securities exchange is not deemed to be a beneficial owner of securities held directly or indirectly by it on behalf of another person solely because the member is the record holder of the securities if the member is precluded by the rules of the exchange from voting without instruction on contested matters or matters that may affect substantially the rights or privileges of the holders of the securities to be voted.    When two or more persons agree to act together for the purpose of voting their shares of the corporation, each member of the group formed by the agreement is deemed to have acquired beneficial ownership, as of the date of the agreement, of all voting shares of the corporation beneficially owned by any member of the group.       “Excluded shares” means shares acquired pursuant to an offer for all shares having voting power if the offer was made within one year before the corporate action for consideration of the same kind and of a value equal to or less than that paid in connection with the corporate action.    “Interested person” means a person, or an affiliate of a person, that, at any time during the one-year period immediately preceding approval by the board of directors of the corporate action:   Was the beneficial owner of twenty percent or more of the voting power of the corporation, other than as owner of excluded shares;    Had the power, contractually or otherwise, other than as owner of excluded shares, to cause the appointment or election of twenty-five percent or more of the directors to the board of directors of the corporation; or    Was a senior executive or director of the corporation or a senior executive of any affiliate of the corporation and will receive, as a result of the corporate action, a financial benefit not generally available to other shareholders as such, other than:   Employment, consulting, retirement, or similar benefits established separately, and not as part of, or in contemplation of, the corporate action; or    Employment, consulting, retirement, or similar benefits established in contemplation of, or as part of, the corporate action that are not more favorable than those existing before the corporate action or, if more favorable, that have been approved on behalf of the corporation in the same manner as is provided in section 7-108-501; or    In the case of a director of the corporation who will, in the corporate action, become a director of the acquiring entity in the corporate action or one of its affiliates, rights and benefits as a director that are provided on the same basis as those afforded by the acquiring entity generally to other directors of the entity or affiliate.             “Preferred shares” means a class or series of shares whose holders have preference over any other class or series with respect to distributions.    “Senior executive” means the chief executive officer, chief operating officer, chief financial officer, and anyone in charge of a principal business unit or function.      History. Source: L. 2019: Entire article R&RE,(SB 19-086), ch. 166, p. 1948, § 56, effective July 1, 2020.    Editor's note:   This section is similar to former § 7-113-101 as it existed prior to July 1, 2020.   Cross references:   For additional definitions applicable to this article, see §§ 7-90-102 and 7-101-401 .   ANNOTATION   Law reviews. For article, “Dissenter's Rights in Colorado”, see 18 Colo. Law. 1101 (1989).   Annotator's note. Since § 7-113-101 is similar to § 7-4-124 as it existed prior to the 1993 recodification of the “Colorado Business Corporation Act”, articles 101 to 117 of title 7, cases construing that provision have been included in the annotations to this section.   Purpose of dissenters' rights statutes is to protect the property rights of dissenting shareholders from actions by majority shareholders that alter the character of their investment. M Life Ins. Co. v. Sapers & Wallack Ins. Agency, Inc., 40 P.3d 6 (Colo. App. 2001).   Statutes, not bylaws of corporation, control valuation of shares. However, the unique structure of the corporation, as expressed in its bylaws, is a relevant factor. M Life Ins. Co. v. Sapers & Wallack Ins. Agency, Inc., 40 P.3d 6 (Colo. App. 2001).   Interpretation of “fair value”. Relying on case law interpreting “fair value” within the context of dissenters' rights statutes in other states, a determination of fair value is based on all relevant value factors considering the particular circumstances of the corporation involved. Such a determination is not premised upon any precise mathematical formula. Pioneer Bancorporation, Inc. v. Waters, 765 P.2d 597 (Colo. App. 1988); M Life Ins. Co. v. Sapers & Wallack Ins. Agency, Inc., 40 P.3d 6 (Colo. App. 2001).   “Fair value” connotes a broader approach to valuation than “fair market value”. In determining fair value, the court must consider all relevant value factors, the most important of which are market value, investment or earnings value, and net asset value. M Life Ins. Co. v. Sapers & Wallack Ins. Agency, Inc., 40 P.3d 6 (Colo. App. 2001).   “Fair value” does not mean “fair market value”; it means a dissenting shareholder's proportionate interest in the corporation valued as a going concern. Pueblo Bancorporation v. Lindoe, Inc., 63 P.3d 353 (Colo. 2003); Crocker v. Greater Colo. Anesthesia, P.C., 2018 COA 33 , 463 P.3d 860.   A marketability discount may, in appropriate circumstances, be applied in situations in which a closely held corporation's shares are valued under this section, but such a determination is a factual one that must be made on an ad hoc basis. WCM Indus. v. Trustees of Wilson Trust, 948 P.2d 36 (Colo. App. 1997) (decided under law as it existed prior to the 1994 repeal of § 7-4-124 ).   Distinction between marketability discount and minority discount. A minority discount adjusts for lack of control over the business entity on the theory that non-controlling shares of stock are not worth their proportionate share of the firm's value because they lack voting power to control corporate actions. A marketability discount adjusts for a lack of liquidity in one's interest in an entity, on the theory that there is a limited supply of potential buyers for stock in a closely held corporation. M Life Ins. Co. v. Sapers & Wallack Ins. Agency, Inc., 40 P.3d 6 (Colo. App. 2001).   Finding of fair value is a factual determination. As such, it will not be disturbed on appeal unless clearly erroneous. M Life Ins. Co. v. Sapers & Wallack Ins. Agency, Inc., 40 P.3d 6 (Colo. App. 2001).   Defendant corporation owed dissenting stockholder the fair value, not the redemption value, for plaintiff's preferred stock. Fair value is akin to fair market value, the value a shareholder would receive in an arms-length transaction, and not necessarily an existent redemptive value if the redemptive value is lower than fair market value. Breniman v. Agricultural Consultants, 829 P.2d 493 (Colo. App. 1992).   Extraordinary actions of the corporation in selling off its property permit the dissenting shareholder to invoke this section to obtain fair value payment for his shares. Breniman v. Agricultural Consultants, 829 P.2d 493 (Colo. App. 1992).   Applied in Walter S. Cheesman Realty Co. v. Moore, 770 P.2d 1308 (Colo. App. 1988).