Shareholders provide capital for businesses in exchange for an interest in their companies. They attend regular shareholder meetings, vote on important operating decisions and receive dividends when the company proves profitable.
Most of the time, shareholders receive appropriate respect and consideration from the organizations in which they invest and the executives running those organizations. Unfortunately, sometimes shareholder disputes arise due to misconduct on the part of others.
A shareholder squeeze-out or freeze-out may lead to business litigation. When do shareholders need to take action to address a potential freeze-out?
When denied basic shareholder rights
Perhaps the company was once a closely-held private organization. The prior sole owner may now be the majority shareholder. After overcoming the financial challenges that required investment, they may want to resume sole ownership of the business.
Other times, a coalition of investors may pool their interests and exert a profound influence as majority shareholders. They may seek to push out minority shareholders and purchase their interest in the company.
Freeze-outs can involve a variety of violations regarding shareholder rights. For example, minority shareholders may not receive their appropriate share of profits despite the company reporting a profitable quarter.
Specific shareholders may not receive advance notice of shareholder meetings or may find themselves excluded from entry by security. If they attend meetings, they may find themselves denied the right to vote. Such conduct typically violates the terms of a shareholder agreement and may constitute an actionable violation of shareholder rights.
Filing a civil lawsuit in response to a squeeze-out attempt can potentially help to shareholders correct an issue of concern and hold majority shareholders or business leaders accountable for their misconduct.