The Buy-Out Remedy

Kent J. Browning - Attorney at law

What is the Buy-Out Remedy?

The buy-out remedy is the most common judicially created exit from a closely-held corporation for an oppressed minority shareholder. It is based on the court¡¯s inherent equitable power and is implicitly consistent with legislatively created remedies.

As described by the court in Davis v. Sheerin:

¡°An ordered ¡®buy-out¡¯ of stock at its fair value is an especially appropriate remedy in a closely-held corporation, where the oppressive acts of the majority are an attempt to ¡®squeeze out¡¯ the minority, who do not have a ready market for the corporation¡¯s shares, but are at the mercy of the majority.¡±

However, a judicial buy-out is an effective remedy only if the price is fair. Most courts are concerned with the concept of fairness and construe ¡°fair value¡± (as opposed to fair market value with minority discounts applied) to mean that an oppressed minority shareholder should receive a pro rata share of the control value of the enterprise as a whole going concern.