Why Are Minority Shareholders Squeezed Out?

Things sometimes don't go as you had planned, and some things are out of your control. But when an action taken by the majority shareholders pressures you and the other minority holders to sell your stakes in the company, you need to put the control in your hands and fight for your rights.

When a company's majority shareholders attempt to eliminate the minority shareholders from making decisions, making their voting rights useless, this action is referred to as a freeze-out or squeeze-out dispute. There are a variety of tactics a company might use to freeze out the minority shareholder, such as:
  • Terminating the minority shareholder employees
  • Not revealing dividends
  • Cashing out minority investors at a very low price

When a company is owned by shareholders, it makes it difficult for minority shareholders to fight back. This is why it is critical that minority shareholders get legal advice from an experienced Texas business litigation attorney. These actions can be overturned by the courts if presented correctly.

A Very Real Example of Small Investors Being Frozen Out

DEI Holdings, Darrell Issa's company, announced in October of last year that the board and the majority of shareholders decided to freeze out investors with small holdings. The minority shareholders were not consulted on the decision, and were cashed out for a very low price.

In this situation, shareholders with less than 240 shares were cashed out for 82 cents a share, and there were a total of 76,000 shares eliminated and over 300 shareholders forced out. Within a few months, the company was sold for more than five times the price the minority shareholders were forced to cash out at.

This is a tactic that companies sometimes use when they want to reduce the number of shareholders so they can go dark or sell the company after they have gone dark. If the company sought a buyer out before it forced out their small investors, the tactic could be one that was intentional to give insiders more profits. If the minority shareholders were not squeezed out, the remaining majority shareholders would have only made pennies per share instead of the large profits they did make.

How a Business Litigation Lawyer Can Help

If you were squeezed out as a minority shareholder, you may have a claim for breach of fiduciary duty. Lawyers skilled in this area of law can help prevent the fraud that is taking place against minority shareholders and can explain more about your rights. Call the Voss Law Firm and speak with an experienced Texas business litigation lawyer in a free legal consultation to find out your rights at (866) 276-6179, and also order your complimentary copy of attorney Bill Voss's book, Business Disputes - Critical Information for All Business Owners. Download this book for free today.
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