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For those that have been a victim of a minority shareholder squeeze out, the experience can be a nightmare. It usually involves the majority shareholder first terminating the employment of a shareholder of less than 50% of the privately held company's stock. The benefit to the minority shareholders in owning the stock is primarily their employment and the anticipation of a fair purchase price when the entire company is sold.
Dividends are seldom paid to shareholders, and if they are, they are minimal. After the minority shareholder is terminated, he receives an offer to purchase his shares from the majority holder or the corporation for what he feels is way below market price. When he objects, he is referred to the shareholder agreement that he signed years ago that gives the Corporation or other shareholders the right of first refusal to purchase his shares at valuations that are not even close to the fair value of his shares.
The first reaction is to sue. Let me tell you it is usually a waste of time and almost always a waste of money. After all, you signed the shareholder agreement that states very clearly:
Right of First Refusal: The Corporation Shall have the power, at its option to purchase any and all of its shares owned and held by any shareholder who should desire to sell - the shareholders shall not assign, transfer, encumber, or in any manner dispose of any or all of the shares of the corporation that may now or hereafter be held or owned by them, and no such shares shall be transferable unless and until such shares have first been offered to the corporation.
It gets worse folks:
Dave Kauppi is a Merger and Acquisition Advisor with Mid Market Capital, Inc. MMC is a private investment banking and business broker firm specializing in providing corporate finance and business intermediary services to entrepreneurs and middle market corporate clients in a variety of industries. The firm counsels clients in the areas of M&A and divestiture, family business succession planning, valuations, minority interest shareholder sales, business sales and business acquisition. Dave is a Certified Business Intermediary (CBI), a licensed business broker, and a member of IBBA (International Business Brokers Association) and the MBBI (Midwest Business Brokers and Intermediaries). Contact Dave Kauppi at (630) 325-0123, email davekauppi@midmarkcap.com or visit our Web page www.midmarkcap.com.
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