Shareholders purchase publicly available stock in a company and then receive certain benefits in exchange for that investment. They can attend shareholder meetings where they may influence the future of the company. They have access to information about the company’s performance and may receive a share of profits when the company is profitable.
Most of the time, shareholders get to retain their privileges and interest in the business until they choose to sell their stock. They can even transfer shares to others after they die as part of the administration of an estate.
However, there are a few scenarios in which the organization can effectively force shareholders to give up their interest in the company. Sometimes restructuring due to financial issues may result in a buyback of stock. Mergers and acquisitions also frequently involve the mandatory sale of stock.
What rights do minority shareholders facing a squeeze-out related to a merger have?
Shareholders deserve fair compensation
Unless there is credible reason to intervene in the transaction, shareholders usually cannot prevent a merger due to their displeasure about losing their interest in the business. However, even when they have to sell their stock, the law does technically protect their rights due to their prior investment.
Frequently, in a merger scenario, the parties attempting to squeeze out minority shareholders intentionally undervalue the stock. Doing so makes the transaction more profitable. Still, undervaluing stock deprives shareholders of their fair compensation for their interest in the company.
Shareholders have the right to request an appraisal. This is a formal process that can help establish a reasonable fair market value for their stock holdings. The outcome of an appraisal can potentially lead to shareholders receiving far more compensation for the forced sale of their stock than they otherwise might in a merger scenario.
Individual minority shareholders or coalitions of frustrated shareholders may need to consult with an attorney familiar with complex business litigation to assert their rights when facing the forced sale of their stock as part of a large business transaction. Pursuing business litigation and an appraisal of the company’s stock can ultimately result in a more reasonable outcome for the shareholders who must give up their interest in a company.