squeeze-out

Squeeze-outs, more commonly called freeze-outs, are the forced sale of stock owned by minority shareholders in a joint-stock company, usually in the context of an acquisition. 

State law governs squeeze-outs and requires fair cash value to be paid to the minority shareholders from the acquiring corporation in exchange for their stock. Courts weigh the evenhandedness of both the compensation minority shareholders receive and the manner of dealing in a squeeze-out. 

Squeeze-outs are often used to manipulate minority shareholders or restrict their voting power. This is illustrated in Matteson v. Ziebarth, where the majority stockholder incorporated his business in order to override a minority shareholder’s vote, forcing him to either sell his stock or lose his investment. In their opinion, the Supreme Court of Washington commented that allowing the merger to go through would “open the way to a new method of freezing out minority stockholders merely because they disagree with the minority on corporate policy”.

[Last updated in June of 2024 by the Wex Definitions Team]