Buy out shareholder, here's how it works

If you are a shareholder in a company, sometimes you want to buy out another shareholder or you want to get rid of your shares yourself. There are a number of legal procedures that govern the buyout of a shareholder. Such a procedure is an important mechanism that ensures continuity in the company and offers shareholders a way out in a shareholder dispute. The three procedures are: the buyout procedure, the squeeze-out procedure (‘squeeze-out’) and the squeeze-out procedure by a 95% shareholder. 

Shareholder buyout: the buyout procedure

In squeeze-out proceedings, a minority shareholder forces the remaining shareholders to buy him out. A minority shareholder may, intentionally or not, be sidelined by the majority shareholder or the remaining shareholders collectively. In that case, a shareholder can bring a claim for exit. This requires that the shareholder's rights or interests have been damaged to such an extent by conduct of one or more co-shareholders that the continuation of his shareholding can no longer reasonably be required of him. In a subpoena proceedings the price of the shares and the amount of shares each shareholder must purchase from the exiting shareholder. In addition, the exiting shareholder can purchase a survey process start at the Enterprise Chamber of the Amsterdam Court of Appeal. This allows the shareholder to determine much more quickly whether his interests have been harmed and thus get rid of his shares more quickly. 

Ejection procedure (‘squeeze-out’).

The second buyout procedure is the squeeze-out procedure. Shareholders who alone or jointly own at least one-third of the shares can require a misbehaving shareholder to transfer his shares to the other shareholders. The requirement is that the misbehaving shareholder has damaged the company's interest by his conduct to such an extent that the continuation of his shareholding cannot reasonably be tolerated. This harmful conduct must have been committed in the capacity of shareholder and not, for example, as a director (which, incidentally, may lead to directors' liability or dismissal of a director). Furthermore, an inquiry process can establish whether these actions are against the corporate interest. 

Ejection proceedings by a 95% shareholder

The final buyout procedure is the issue procedure by a 95% shareholder. This shareholder can demand that the company's other shareholders transfer their shares to him. In principle, the court grants this claim. Only if the minority shareholder would suffer serious material damage from the transfer is the claim rejected. The claim can also be rejected if there is special control attached to a share of the minority shareholder or if the 95% shareholder has waived the authority to bring this claim. 

Conclusion

The possibility of buying out a shareholder is an important part of corporate law. The three procedures are often used to resolve shareholder disputes because things are no longer going well with a particular shareholder and decision-making seems to be becoming impossible. In practice, the procedures are frequently initiated after an inquiry procedure, because in that procedure it can be determined whether there is a deadlock in the shareholders' decision-making process. Moreover, a squeeze-out procedure can take a long time, while an inquiry procedure is often fast and efficient. The corporate lawyer at Lexys Advocaten can tell you more about buying out a shareholder and how best to handle this in your situation.