What is A Squeeze-Out Merger?

A squeeze-out merger is a device used to eliminate unwanted minority owners.  Under the Ohio statute (and the statute of many states), mergers must be approved by a super-majority of the shareholders (often 67%).  This super-majority requirement gives minority shareholders some level of comfort that a simple majority cannot squeeze them out.  However, this super-majority requirement can be (and often is) eliminated by the shareholders inadvertently.  Under Ohio law, the super-majority requirement that applies to many of the extra-ordinary corporate transactions including mergers can be eliminated by adding a provision to the corporation’s Articles of Incorporation stating that all shareholder decisions will be made by majority vote. 

Assuming one or more shareholders has the required votes (a majority or super-majority as the case may be) those control shareholders can eliminate the minority shareholders by approving a squeeze-out merger.  In a squeeze-out merger, the control shareholders set up a new corporation which only they own to be merged with the existing corporation.  Under the terms of the merger, the control shareholders are given all of the stock of the surviving corporation and the minority shareholders are cashed out.  The minority shareholders are unable to prevent the merger.  The minority shareholders only rights as dissenters is to demand and sue to receive fair cash value. 

A squeeze-out merger can be a powerful tool for control shareholders to remove disruptive minority shareholders.  But a squeeze-out merger can also be a heavy-handed way for greedy control shareholders to eliminate minority shareholders when the corporation is starting to generate cash and build value.

If you want to talk about squeeze-out mergers or would like some help reviewing or drafting appropriate language for your Articles of Incorporation give me   a call.  Jsenney@pselaw.com or 937-223-1130.

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AND ONE MORE THING.  This is worth repeating. The State of Ohio Tax Department is stepping up its use tax enforcement efforts against businesses.  But in conjunction with this new enforcement effort, the Ohio Tax Department is offering an amnesty program beginning October 1, 2011 and ending May 1, 2013.  Businesses that enter the program will have to pay use tax back to January 1, 2009, but will not have to pay interest or penalty.   If you want to know more about use tax or the amnesty program, please give me a call.  Jsenney@pselaw.com or 937-223-1130.

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