Squeeze Out Techniques

Kent J. Browning - Attorney at law

What are Common Squeeze-Out Techniques?

A ¡°squeeze-out¡± is an action taken by majority or controlling shareholders in an attempt to reduce or eliminate a minority shareholder¡¯s interest in a closely held corporation. This is true in the context of other closely held business entities as well.

Common squeeze-out techniques include:
  • Refusal to declare dividends
  • Refusal to distribute earnings as bonuses or retirement benefits
  • Siphoning off earnings through exorbitant salaries and bonuses (de facto or disguised dividends)
  • Improper use of company funds to pay the personal expenses of controlling shareholders or members of their families
  • Termination of employment (the functional equivalent to a denial of dividends or any return on investment)
  • Removal as directors or officers (or effectively depriving minority shareholders of any active voice or meaningful role in the management and operation of the corporation)
  • Deliberate withholding of information or manipulation of company books and records
  • Usurpation of business opportunities and misappropriation of corporate assets
  • Conspiracy to deprive a minority owner of all or a portion of his or her ownership interest
Squeeze-out techniques are used by majority or controlling shareholders to ¡°lock in¡± a minority shareholder for two reasons: (1) to force a sale of a minority interest at less than a fair price and, (2) to ¡°freeze out¡± the minority of a fair return on investment.