How can minority shareholders fight a freeze-out attempt?

Growing corporations, and even startups, sometimes make shares available to the public. Investors can contribute toward the company and may then have a degree of influence on operations. They can also receive dividends when the company is profitable.

Organizations that look to shareholders for funding may not always treat them with the respect that their financial contributions should command. Occasionally, a single majority shareholder or a small group who holds the majority of shares may attempt to freeze out minority shareholders. The goal is to force them to sell their shares despite their potential desire to retain them.

How can shareholders respond to a freeze-out attempt in ways that can protect their interests?

Cooperating with one another

Individual minority shareholders may not be able to achieve much when fighting back against business misconduct. However, a group of minority shareholders can have a profound impact. If one shareholder experiences issues ranging from a refusal to pay dividends to exclusion from shareholder meetings, others may have endured the same mistreatment. Connecting with other shareholders may allow those with a minority interest in a company to increase the impact that their complaints may have.

Pursuing litigation to resolve the issue

Business litigation can eat into a company’s profit margins, as it can be very expensive to retain proper legal representation for a shareholder lawsuit and resolve the conflict. Therefore, shareholders are often reticent to take legal action even when facing clear violations of their rights. Despite the short-term negative impact that litigation could potentially have on a company’s budget, failing to take action is a much bigger concern. A lawsuit could lead to the courts holding majority shareholders accountable for their misconduct.

It may also prompt majority shareholders to sit down with the affected minority shareholders instead of continuing to attempt to freeze them out of company operations. The potential for an unfavorable ruling from the court combined with the negative exposure of a shareholder lawsuit could inspire executives and majority shareholders to take minority shareholder concerns more seriously.

Discussing the issues that have created concerns about a potential freeze-out with a skilled legal team could help shareholders better respond to a dispute with the company in which they have invested. Shareholders who take timely action can potentially minimize the negative impact of questionable business practices during a freeze-out.

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