FREEZE-OUT

freeze-out,n. Corporations. The process, usu. in a closely held corporation, by which the

majority shareholders or the board of directors oppresses minority shareholders in an effort to

compel them to liquidate their investment on terms favorable to the controlling shareholders. Cf.

SQUEEZE-OUT T. [Cases: Corporations 182.3, 584; Securities Regulation 60.21. C.J.S.

Corporations §§ 344, 799–801; Securities Regulation § 190.]

“A ‘freeze-out’ is usually accomplished by the merger of a corporation into its parent

corporation, where the parent corporation owns a large percentage of the shares of the subsidiary,

and the minority shareholders are entitled to minimal distributions of cash or securities. A

‘freeze-out’ may also be used to connote the situation where so large a number of equity shares are

issued to the acquiring corporation that the public shareholders own less than 10 percent of the

outstanding equity securities and, therefore, have no control over the corporation or any of its

decisions. In such event, a short-form merger could later be used to eliminate the minority

shareholders.” 69A Am. Jur. 2d Securities Regulation — State § 245, at 971 n.60 (1993).[Blacks Law 8th]