It’s an unfortunate but true fact of corporate life that shareholders don’t always see eye to eye. Disagreements can escalate to conflicts. A common occurrence when shareholders fight is for the majority to try to coerce the minority, mainly to try to get them to sell or give up their shares. There exist any number of reasons why a majority shareholder might seek to oust a minority–although greed or lust for power probably jump to mind, usually the motivations boil down to a business decision–but whatever the reason behind it, when the majority tries to force out a minority shareholder, it’s called a squeeze out.
While the Constitution makes provisions to preserve the rights of minority party’s against any possible tyranny of the majority, in the corporate world few such safeguards exist. There are numerous strategies a majority shareholder can undertake to try to force a minority shareholder to sell. In many cases the squeezed party has far fewer options.
The weapon of choice (legally speaking) for most targets of squeeze play looking not to go down without a fight lies in the idea of fiduciary duty. Although there’s nothing in corporate law that requires minority shareholders be defended as such, all members of a corporate board have a fiduciary duty, that is they are required to act in the interests of the company at large. The standard defense against squeeze play is thus to argue that the squeezer is acting not in the best interests of the company but for his or her own personal advantage, perhaps at the expense of the overall wellbeing of the company.
Every squeeze out situation is different and shareholder disputes are rarely simple. For more information on shareholder disputes, minority oppression, squeeze play or other corporate law concerns, contact the Chicago corporate attorneys at Horowitz & Weinstein.