Freeze-Outs and Share Dilution

Reno, NV Attorney serving Nevada & California

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When you hold a minority share in a corporation, you are generally more vulnerable to the majority shareholders. The board, officers, and majority shareholders all owe a fiduciary duty to the minority shareholders, but sometimes their duty conflicts with their own interests. If they try to further reduce your stake in the company without your consent, they may be leaving themselves open to a corporate misconduct lawsuit.

To learn more about the legal options available to minority and majority shareholders, talk to Thomas C. Bradley, Nevada business attorney. Mr. Bradley will work closely with you every step of the way, and will let you know what your options are and what you can realistically expect from pursuing each one. Call him at (775) 323-5178.

Share Dilution

There can be several reasons a company sells off shares at a price lower than the last valuation. Sometimes a company has legitimately lost value, and share prices are being changed to reflect this. Other times, however, companies may dilute the value of shares by bringing in more investors and effectively shrinking your piece of the pie.

To determine whether a devaluation is legitimate, courts look at several factors. They will be trying to answer questions such as:

  • Did the company legitimately need extra financing?
  • Did the minority stakeholders suffer disproportionately as a result of the extra financing?
  • Who stood to gain and who stood to lose from the extra round of financing?

If it is determined that directors, officers, and/or majority shareholders gained value at the expense of minority shareholders, the minority shareholders may have grounds for a lawsuit.

"Freeze-Out" Mergers

Another frequently used tactic is the freeze-out (also known as the "squeeze-out") merger, in which your company merges with another. In order to preserve their large stakes in the newly-merged company, majority shareholders may conspire to freeze out smaller shareholders, forcing them to sell off stock in the company.

Once again, courts can investigate the details of these mergers and try to determine whether majority shareholders are benefiting at the expense of the smaller shareholders. These mergers can reasonably be seen as an unappealing transaction for the company, especially for newer startup companies. A majority shareholder pushing through such a merger could be in violation of their fiduciary duty toward minority shareholders.

Find a Lawyer to Defend Your Interests

With over 30 years of experience practicing business law in Nevada, Tom Bradley is an excellent choice to represent you in corporate disputes. Contact his office at (775) 323-5178, or through this website.