Freeze-outs and squeeze outs in corporations and LLCs

Freeze-outs and squeeze outs in corporations and LLCs

A freeze-out occurs when shareholders, partners or LLC mangers or members are in a dispute and a majority party forces the minority party out of the business. This often includes, but is not limited to: employment termination, denial of dividends or distribution, exclusion from meetings, a lockout from the premises, theft of trade secrets or other intellectual property, denial of access to books and records, and excessive salaries and bonuses to those in control.

It is sometimes difficult to determine whether a freeze-out occurred. The majority might engage in dilutive financing, selling equity at a lower price than the value of the company and, by extension, diluting minority shareholder’s interests, but the corporation might have needed to raise money. In a short-form merger, a parent corporation merges with a smaller subsidiary, forcing a buyout of the minority shareholder’s shares, but this may have been done to expand the business’s market and resources.

Thus, not all things that may constitute a freeze-out are actually a freeze-out/squeeze-out, making a sophisticated analysis essential.

 

To speak to one of our lawyers, get in touch with us at (312) 223-1699 or email Thomas E. Patterson at tpatterson@pattersonlawfirm.com for more advice and information.

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