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The Anatomy of a Fight With Your Business Partners: Freeze-Out‚ Lock-Out‚ Squeeze-Out

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

Date: 03/24/2014 | Category: Partnership Disputes | No comments

 

Are you a minority or non-controlling shareholder? Are you a partial owner of a successful New York or New Jersey Business and you are faced with a dispute or fight with your business partners? Are you experiencing pressure from your partners and shareholders?

Well if so‚ then chances are that you may be faced with acts of “shareholder oppression”. That is‚ although you may be a 10%‚ 20%‚ 40% and even 50% shareholder and owner of “your” business‚ your business partner may be using his or her “control” to pressure you to get out. How do they do this? Well the common methdology is a “freeze-out”‚ followed by a “lock-out” and then a “squeeze-out”. Examples include:

  • They Claim it is Your Fault – Your business partners claim that you are not doing your job‚ that you breached your obligations and that things are not good.
  • They Initially Examine Your Departure – Your business partners initially discuss your departure and options to possibly buy you out. This initial conversation may be civil but‚ chances are‚ your partners are just “probing” and unless you are willing to be bought out for pennies on the dollar‚ this civil conversation will eventually turn into a freeze-out.
  • Freeze-Out – Chances are that a full blown dispute has not yet erupted and a dialogue may be continuing about your departure. However‚ this is where the “freeze-out” comes along: your partners start taking away your duties‚ they communicate with you less and they tell employees to limit communications with you. Then they start taking a harder line on their negotiations with you.
  • Lock-Out – Following some more intense discussions or possibly no communication at all‚ what happens after the gradual freeze-out is an absolute lock-out. That is during you possible “negotiations” your partners have been preparing to lock you out. They probably spoke with legal counsel and one day they just change everythig‚ shut down your email and lock you out. Of course they will claim that “you left them no choice” and that its your fault.
  • Squeeze-Out – Following the lock-out the pressure is now on. Your partners will have cutoff or will be threatening to cuttoff your salary and distributions. If you dont agree to their terms (accepting pennies on the dollar and giving up your own business) their plan will be to economically deny you the value and income due to you as an owner. Your partners will be hoping that the pressure will be enough to squeeze you out.

So How Do Smart Shareholders Respond and Fight Back?

We will discuss that in our next blog post (hint: they stop their partners in their tracks with an injunction). Also‚ learn more about proven responses that smart business owners and shareholders take when faced with a partnership dispute: Order a complimentary copy of Charles N. Internicola’s Book “The New York and New Jersey Partnership Dispute Guide”.

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