Shareholder Rights Plan

What is Shareholder Rights Plan?

A shareholder rights plan (commonly called a "poison pill") is a defensive measure adopted by a company's board of directors to deter hostile takeover attempts. The plan grants existing shareholders the right to purchase additional shares at a significant discount — typically 50% — if any single acquirer crosses a specified ownership threshold (commonly 15–20%), severely diluting the hostile bidder's stake. Poison pills require only board approval (no shareholder vote) and can be adopted rapidly in response to a threat. While controversial — critics argue they entrench management — courts have generally upheld them as a legitimate, temporary defensive tool when boards act in good faith to evaluate alternatives and maximize shareholder value.