Meaning
Statutory mechanisms allow a majority shareholder of a company to acquire the remaining shares held by minority investors. Through an equity squeeze-out, the majority owner forces the minority to sell their holdings, typically to achieve full ownership after a takeover or to simplify the corporate structure. This transaction requires the payment of fair compensation to the expropriated shareholders.
Trigger Event
Corporate laws usually set a high ownership threshold that must be reached before this compulsory buyout can be initiated. In many jurisdictions, the majority shareholder must control at least ninety or ninety-five percent of the voting shares. Once this threshold is crossed, the majority shareholder holds the legal right to buy the remaining shares regardless of the minority’s willingness to sell.
This statutory right prevents holdout shareholders from blocking corporate restructurings, refinancing efforts, or the removal of the company from public stock exchanges.
Minority Valuation
Dispute risk arises primarily around the pricing of the shares subject to the compulsory purchase. If minority shareholders believe the offered price is too low, they can apply to a court or an independent tribunal for an appraisal of the fair value of their equity.
Corporate Resolution
The completion of the transfer occurs automatically upon the deposit of the purchase funds into a designated account. The company then cancels the old share certificates held by the minority and registers the majority shareholder as the sole owner.
