Squeeze-Out Merger - LLC

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A squeeze-out merger is a device used to eliminate unwanted minority owners.  Under the Ohio statute (and the statute of many states), mergers of limited liability companies must by all of the managers or all of the members unless the Operating Agreement provides for a different number or percentage.   Many LLC Operating Agreements contain language that permits a majority or super-majority of the managers or members to make decisions affecting the LLC.  If this is the case, one or more managers or members holding the required majority or super-majority can eliminate minority owners.

The squeeze-out works as follows: (1) the controlling owners create a new LLC owned only by them; (2) the old LLC is merged with and into the new LLC; (3) the merger agreement provides that the controlling owners are the only owners of the surviving LLC; and (4) the minority owner is paid fair cash value for his or her LLC ownership units.

If the squeeze-out merger is properly done, the minority owners only recourse is to argue that the compensation they received in exchange for their ownership interests was not fair cash value.   The minority owners are unable to prevent the merger.

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

To protect yourself, you need to read and understand what the Operating Agreement says.  If you want to talk about squeeze-out mergers or would like some help reviewing or drafting appropriate Operating Agreement language give me   a call.  Jsenney@pselaw.com or937-223-1130.

 
AND ONE MORE THING. If you or a friend have invented a new product, or have improved an existing product, you need to be careful to preserve your rights as to such invention or improvement. To protect your rights, you can seek a provisional patent or a full utility patent. But you must make an application within one year after the first public disclosure of the invention.  A public disclosure is any disclosure of information about the invention that is made without restriction on the recipient’s right to disseminate such information. To avoid making a public disclosure, it is important to have every person or entity that will receive information about such invention sign a non-disclosure agreement. Call or email me if you need a non-disclosure agreement drafted.   Jsenney@pselaw.com or 937-223-1130