A freeze-out is one way for majority or controlling shareholders in closely held corporations to abuse and oppress minority shareholders. More specifically, a freeze-out is the manipulative use of corporate control to eliminate minority shareholders, or to reduce their share of voting power or percentage of ownership assets, or otherwise unfairly deprive them of advantages or opportunities to which they are entitled.
In doing so, a corporate freeze out restricts the rights of another shareholder. Oftentimes, the minority ownership is forced to give up its shares in the corporation in exchange for cash, while the controlling interest is allowed to retain its equity.
Courts generally impose a heightened fiduciary duty on majority or controlling shareholders in these corporations. The court will look at two aspects of “fairness” of the corporate “freeze-out” merger: fair dealing and fair price.
[Last updated in February of 2022 by the Wex Definitions Team]
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