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Simple English definitions for legal terms
Squeeze-out
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A quick definition of Squeeze-out:
Squeeze-out: When a company is bought by another company, sometimes the smaller shareholders who own a small amount of the company's stock are forced to sell their shares. This is called a squeeze-out. The law says that the smaller shareholders must be paid a fair amount of money for their shares.
A more thorough explanation:
Definition: 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 be paid to the minority shareholders from the acquiring corporation in exchange for their stock.
Example: Company A wants to acquire Company B. Company B has 100,000 shares of stock outstanding, with 80,000 owned by the majority shareholders and 20,000 owned by the minority shareholders. Company A offers to buy all of Company B's shares for $10 per share. The majority shareholders agree to sell, but the minority shareholders do not. Company A then uses a squeeze-out provision to force the minority shareholders to sell their shares for $10 each.
This example illustrates how a squeeze-out can be used to acquire all of the shares of a company, even if some shareholders do not want to sell. The minority shareholders are forced to sell their shares at a fair cash value determined by state law.