In corporate law, a squeeze out is a type of corporate dispute. It occurs when a person or persons who together control the majority of shares in company coerce minority shareholders to sell their shares. There is no set procedure for a squeeze out. The action is defined by its results, not the methods used to attain them.
Over the next several posts I’m going to dive into the subject of squeeze play and oppression of minority shareholders. This first post will cover the motivations behind squeeze play. Future posts will dig into the various ways squeeze outs can unfold, a well as touching on the remedies available for the oppressed minority.
Surprisingly few squeeze outs result from simple greed, avarice or desire for power. These do of course happen, but in general people are not willing to undertake legal litigation, a complex and oftentimes sluggish process, solely for the want of more money or control. Far more commonly than greed, ambition, born from talent and a desire to actualize one’s potential, leads to squeeze play. A shareholder may decide that he or she is being held back by other shareholders. This may be simple vanity or it may result from a genuine mismatch of talent.
Family and marital discord can also often lead to squeeze outs. Especially common is the situation in which the founder of a company dies and divides it up among his or her children and years down the line, disagreement among the children leads to squeeze play. Two brothers, for example, may inherit their parents’ business. Perhaps one brother is heavily involved in the operation of the company but the other takes no interest and simply draws dividends from his stock. Perhaps the uninvolved sibling even actively votes against the efforts of his brother despite his being relatively uninvolved in the company. In this situation, the older brother might pursue a squeeze out.
Whether or not family ties are involved, many squeeze outs come about because minority shareholders are, in the eyes of the majority, standing in the way of the growth of the company. Likewise, squeeze outs can come about when a minority shareholder leaves a company without selling off his or her shares and then goes to work for a competitor. Being a shareholder, this individual would be entitled to operational information about the company, information that would almost certainly benefit the competitor. A squeeze out in this situation not only seems justified from a fairness standpoint, it is arguably necessary for the continued wellbeing of the company.
For further information on squeeze outs, contact the Chicago corporate lawyers of Horowitz and Weinstein.
Next installment: The Siege