For the minority shareholder or partner finding themselves on the wrong side of a squeeze or freeze out, sometimes the most difficult step is recognizing you’re being squeezed in the first place. There are various methods the majority can use to try to squeeze or otherwise coerce a minority shareholder or partner into giving up their interest in the company. These methods include withholding benefits such as dividends or terminating the shareholder from employment.
Some of those methods are rather obvious. It’s easy in those situations to know you’re being squeezed. One method that is not necessarily as clear in the moment is what’s called a freeze out merger. In a freeze out merger, the majority shareholder or shareholders incorporates a second company and initiates a merger with the first corporation. The minority shareholders are, as part of that merger, forced to sell their shares.
The legal standing of a freeze out merger depends on jurisdiction and, of course, on just how it’s executed. In some cases, the shareholders effecting the merger make sure to offer slightly more than the market value for the shares to shield themselves from running afoul of standards of fair value.
Horowitz Law Offices has represented numerous shareholders and partners in a variety of disputes, including squeeze and free outs. You are welcome to contact us at (312) 787-5533 or firstname.lastname@example.org