What are three provisions in many corporate charters that deter takeovers?
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What are three provisions in many corporate charters that deter takeovers? |

Explanation
Clauses in in corporate charters that discourage takeovers are:
Targeted share repurchase: Targeted share repurchase is a practice where the target firm purchases its stock from the bidder at a price above the market price of the stock and dilutes the stake of the bidder. The bidder makes profit and promises not to attempt the takeover for a specified number of years stated in the duly signed contractual agreement between the parties.
Shareholder rights provision: Here, the existing shareholders of the company are offered the right to buy a specified number of shares at a very low price in order to dilute the holdings of the hostile party and make the takeover difficult.
Restricted voting rights: As per this provision, the management cancels the voting rights of a shareholder whose holdings in the company crossed the specified limit in order to deter the chances of takeover by that shareholder.
Verified Answer
The three clauses that a shareholder-friendly charter should contain are:
Targeted share repurchase: This is also known as greenmail. This clause prevents hostile takeovers by buying back the shares at a premium from hostile bidders.
Shareholder rights provision: This clause gives the right to existing shareholders to buy shares at a discounted rate inorder to counter a hostile takeover.
Restricted voting rights: As per this clause, an upper holding limit of shares is set. The voting rights of any shareholder who owns shares more than this limit is cancelled to deter hostile takeovers.