On the level of the individual, a fairly effective way to sum up US law would be “majority rule with protections in place for minority interests.” Thus we have the Bill of Rights, the Civil Rights Act, etc. The world of corporate law looks a little different. There majority rules and protections for minority interests are minimal.
By far the most commonly used and arguably one of the most powerful avenues of defense for the minority interest in a shareholder dispute or any other kind of squeeze play lies in the concept of fiduciary duty. Fiduciary means having an obligation to act in someone else’s best interest. It’s a word with numerous legal applications but in the context of a shareholder dispute, it generally refers to the responsibility of a corporate board to act in the best interests of the corporation and of the shareholders. This would also apply in partnerships.
A squeeze out is a somewhat informal term for what happens when a person or persons which together have a majority interest in a business try to convince or coerce a minority interest to sell their control. There are numerous means by which the majority party can try to accomplish this, everything from intentionally devaluing shares to denying dividends to rescheduling shareholder meetings with minimal notice. In most cases, recourses for the oppressed minority are few.
But the concept of fiduciary duty can prove an effective defense. There’s no clear cut line here, no sharp divider between legal and illegal. Every case will be different. But in general principle, if an oppressed minority can show that the majority’s actions are not in the best interests of the company as a whole, it is possible to resist the squeeze play.
Again, every case is unique and as such it’s not only difficult but quite unhelpful to get too much into broad, general statements. The best avenue for any party in a squeeze out, shareholder dispute, or partnership freeze out scenario is to seek professional counsel.
For more information on shareholder disputes, fiduciary duty, minority oppression, or other corporate law concerns, contact the Chicago corporate lawyers at Horowitz & Weinstein.