Freeze Out Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Freeze Out, written in plain English, along with examples of how it is used.

What is Freeze Out?

When shareholders with a large number of shares deny the rights of shareholders with smaller numbers of shares.

History and Meaning of Freeze Out

Freeze out is a legal term that refers to a situation where majority shareholders use their power to limit or completely eliminate the rights of minority shareholders. The term originated in the 19th century and was first used in the context of corporations, where large shareholders would freeze out smaller ones by denying them access to information, dividends or board membership.

Examples of Freeze Out

Here are some examples of freeze out in different contexts:

  • In a company where one shareholder owns 60% of the shares, they can freeze out the other shareholders by voting in all board members and making all the decisions.

  • In a merger or acquisition, the acquiring company can freeze out the minority shareholders of the target company by not offering them the same terms as the majority shareholders.

  • In a partnership, one partner can freeze out the others by making all the decisions and not sharing profits equally.

Legal Terms Similar to Freeze Out

Some related legal terms to freeze out include:

  • Squeeze-out: A situation in which a majority shareholder forces the minority shareholders to sell their shares to them at a price set by the majority shareholder.

  • Shot-gun clause: A provision in a partnership or shareholder agreement that allows one partner or shareholder to offer a price for the other partner's or shareholder's stake in the business. The other partner must either accept the offer or buy out the first partner at the same price.

  • Oppression: A situation in which a shareholder or a director of a company engages in conduct that is oppressive, unfairly prejudicial, or discriminatory to another shareholder or to the company itself.