There are various techniques by which persons controlling a business venture may deprive minority shareholders of their interest in the business or of a fair return on their investment. Majority shareholders of a corporation, through their capability to elect and control all or most of the directors and to determine the outcome of shareholders’ votes on other matters, have great power to use a great variety of strategies or methods to give themselves an advantage at the expense of minority shareholders. Squeeze-outs commonly affect the minority investor’s cash flow from the venture while attempting to increase the cash flow of the controlling shareholders.
Controlling shareholders attempting to squeeze-out their minority counterparts often attempt to reduce the minority shareholder’s returns or attempt to increase their return in investment. There are a variety of methods a controlling shareholder may to manipulate returns:
- dividend withholdings;
- excluding minority shareholders from company employment and the board of directors;
- appropriation of corporate assets;
- usurping corporate opportunities;
- dilution of shares by issuances of stock; and
- withholding information.
In addition, controlling shareholders my attempt to squeeze-out minority shareholders through methods aimed at reorganizing corporate governance, such as:
- eliminating cumulative voting;
- amending stock transfer restrictions; and
- arrangements relating to corporate meetings.