Shareholders have certain rights and legal protections that they gain in exchange for investing in a business. Shareholders typically attend meetings where they discuss the company’s operations and finances. They receive dividend payments when the company is profitable and can vote on important decisions about the future of the company.
In some cases, a majority shareholder who may have previously outright owned the company or a coalition of shareholders working cooperatively may seek to freeze out minority shareholders. When that happens, shareholders may need to take legal action to protect themselves and their investments.
What is a freeze-out?
Freeze-outs are an attempt to reclaim the interest in the company acquired by shareholders. Also known as a squeeze-out, a freeze-out is a series of intentional actions that aim to frustrate shareholders and force them into selling their interest in the business even though they may not want to do so.
Holding meetings without giving all shareholders advance notice, excluding them from the facilities where meetings are held, withholding quarterly dividend payments and refusing to allow them to vote on key issues are all examples of behavior that may arise during a freeze-out. Shareholders may feel as though they have no option other than to sell their holdings for less than what they are worth.
Thankfully, both the law and shareholder agreements protect investors from this somewhat common form of misconduct. Documenting misconduct and taking prompt action can prevent shareholders from sustaining losses due to the misconduct of others. An attorney familiar with business litigation can advise shareholders of their rights and help them assess different legal remedies before they take legal action.