Being Squeezed out of a Family Owned Business?
By: LawInfo
Published: 07/2010
Minority shareholders often find themselves being squeezed out of a business when the majority shareholders decide to get rid of them. While this happens in all kinds of businesses, there are additional reasons in family owned businesses for putting pressure on a minority shareholder to sell his or her shares. A squeeze out occurs when a stockholder is forced to sell his or her stock in a company by the majority stockholders who typically want to take control of the company
How to Recognize if You are Being Squeezed Out of the Business
Many minority shareholders have a hunch that they are being squeezed out of the business long before the final action takes place. Often that hunch is based on:
· Termination of Employment: many minority shareholders are employees of the business. If their employment is terminated it is a sign that the majority shareholders want to them to give up their share of stocks.
· Change in Family Circumstances:if there has been a change in your family circumstances that your family does not approve of then you may be squeezed out of the business. For example, if you marry someone of whom the family does not approve or divorce the blood relation to the business family then the majority shareholders may try to squeeze you out of the company.
· Receipt of an Offer to Purchase Stock Well Below Market Value: in order to complete the squeeze out the majority shareholders must purchase the shares of the minority shareholders. Often the offer to purchase comes at below fair market value because minority shares are seldom worth the same as majority shares in privately held companies.
Potential Remedies if You are Being Squeezed Out of the Business
It can be difficult to avoid being squeezed out of a family owned business but it is not impossible. Minority shareholders may be able to bring a lawsuit alleging that the majority shareholders breached their fiduciary duties, their duties of good faith and fair dealing or that they were wrongfully terminated. If a court finds for the minority shareholder then the court can order that his shares and/or job be reinstated and order the business to pay any financial damages incurred by the minority shareholder. Punitive damages can also be ordered by a court particularly if the court finds that the majority shareholders engaged in a conspiracy to oust the minority shareholder.
Most minority shareholders do not want to remain in a job or as a shareholder in a company that is hostile to them. However, that does not mean that the minority shareholder should suffer financially and be squeezed out of the company. A minority shareholder may be able to work out an equitable arrangement with the majority shareholders if the minority shareholder is willing to leave the business in exchange for financial compensation.
Generally, family issues precede a squeeze out in a family business. If you are having familial problems with the relatives with whom you work then you should be on the lookout for the signs of a potential squeeze out and be aware of your potential remedies.
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