Understanding Minority Squeeze Outs
If you are a minority owner of a business, and you feel that you are being treated unfairly by the majority owner and your ownership stake in the company is at risk, you may be experiencing what is known as a minority squeeze out.
A minority squeeze out occurs when majority shareholders in a company take actions to marginalize, reduce, or entirely terminate the ownership stake of minority shareholders. These actions can manifest in various ways, from pressuring minority shareholders to sell their shares to denying dividend payouts to terminating minority shareholder employment. Unfortunately, this dynamic can leave minority investors feeling powerless and questioning their legal options.
A squeeze out can happen for several reasons, some of the most common being:
- Consolidation of Control: Majority shareholders may want to solidify their decision-making power without opposition.
- A Corporate Merger or Acquisition Has Occurred: In a merger or acquisition, ownership percentages might be rearranged. Minority shareholders may no longer fit into the new structure and are thus squeezed out.
- Strategic Business Moves: There is a desire for the company to have more unified ownership.
- Shareholder Disputes: Disagreements between shareholders can lead to attempts to force minority members out of the picture.
Actions that are signs of a minority squeeze out may include:
- Failure to share the company’s financial records with you as an owner;
- Unexplained termination of your role as an employee or officer of the company;
- Failure to distribute earnings to all the owners for no business reason;
- Increase in benefits or perks to some of the owners but not others;
- Sudden, unexplained changes in the way the corporation pays benefits to owners
The Legality of Minority Squeeze Outs
The legality of minority squeeze outs, or freeze outs, can be complex and heavily dependent on the specifics of each situation. They are also affected by state and federal laws governing corporate conduct. Generally, while majority shareholders have the right to make decisions that could materially affect the company's future, they must also act fairly toward all shareholders.
Actions to squeeze out minority shareholders may be lawful if done correctly. However, it's equally possible for these actions to cross legal boundaries, especially if performed without proper notice, involve self-dealing, or if the terms are unjust.
In such cases, minority shareholders may have grounds for a legal claim centering on several issues, including:
- Breach of fiduciary duty,
- Violation of specific provisions of corporate law protecting shareholder rights, or
- Wrongful termination
Minority shareholders need to understand that although they own a smaller portion of the company, they do have rights. And, in the event of an unlawful squeeze out, you may have options for fighting back.
Your Rights and Options as a Minority Shareholder
Consulting with a corporate attorney familiar with shareholder disputes is critical in navigating these challenges, as they can help you determine your preferred course of action. If you suspect you're facing a squeeze out or believe you are being forced out unlawfully, taking immediate steps to understand your position and rights within the company is crucial.
Remember: Under Georgia law, minority shareholders are owed a duty of care by majority shareholders to protect their interests.
A thorough review of the shareholder agreement with your attorney is an excellent place to start. These agreements often contain vital details regarding the rights and protections afforded to minority shareholders. In instances where the actions of majority stakeholders seem to infringe upon your rights or the law, your attorney can advise you on your options for taking legal action.
Experienced Legal Support for Your Case
At Beal Sutherland Berlin & Brown, we understand that every shareholder situation is unique. That's why we personalize our approach, creating legal strategies prioritizing our clients' best interests. No matter what industry you are in or what specific issue you're dealing with, our firm stands ready to help you.
Potential legal actions that may help you address an unlawful minority squeeze out include:
- Valuation Dispute: Challenge any buyout offers you believe undervalue your shares.
- Litigation: File a lawsuit if you believe majority actions violate laws or shareholder agreements.
- Negotiation: Attempt to resolve disputes through mediation or negotiation.
Experience and commitment are at the heart of Beal Sutherland Berlin & Brown’s legal services. If you find yourself being squeezed out of your company in Atlanta, we are here to help.
Contact us today to schedule a consultation with our team and stand firm in the face of an unlawful squeeze out.