Illinois Business Corporation Act

Squeezed Out of Your Own Company? Strategies for Freeze-Outs in Closely Held Businesses

November 15, 2025 | Peter S. Lubin and James V. DiTommaso

When Majority Owners Turn on Their Partners

In closely held corporations and limited-liability companies, majority owners sometimes forget that they owe duties to their partners. We see the same pattern again and again: a founder who built a business is gradually cut out of key decisions, denied access to financial information, removed from management, and eventually offered a take-it-or-leave-it buyout at a fraction of what the stake is actually worth.

These “squeeze-out” and “freeze-out” tactics can be subtle—changing compensation structures, diverting opportunities to new entities, or refusing to declare dividends while insiders pay themselves oversized salaries. In more extreme cases, they involve outright fraud: phony invoices to related companies, off-the-books revenue, or manipulated financial statements designed to hide the business’s true value.

We also regularly defend owners wrongfully accused on using freeze-out tactics.

Combining Oppression, Fraud, and Consumer-Fraud Theories

Our firm regularly represents minority owners who have been frozen out of the businesses they helped build controlling owners who allegedly have done that. Depending on the facts, we may bring claims for shareholder oppression, breach of fiduciary duty, common-law fraud, unjust enrichment, and, where appropriate, claims under statutes such as the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2, when deceptive tactics are used to induce an unfair buyout. We also are experienced at litigating affirmative defenses to these types of claims.

The same kinds of deceptive practices we see in consumer transactions—omitting material facts, presenting misleading financials, and papering over obvious discrepancies—often appear in freeze-out cases. When majority owners present inflated or deflated numbers to justify squeezing out a partner, we treat that as serious misconduct, not “hard bargaining.”

The Role of Forensic Accountants in Freeze-Out Cases

In many freeze-out disputes, the key question is simple to ask but hard to answer: what is the company really worth, and how much value has been diverted? To answer that, we bring in forensic accountants who are experienced in partner and shareholder litigation. They can:

Analyze financial statements, tax returns, and bank records to identify hidden income and excessive insider compensation;
Reconstruct the economic value of the business at key points in time; and
Quantify damages from diverted opportunities, self-dealing, and other fiduciary breaches.

We have worked with experts whose prior cases resulted in courts awarding tens of millions of dollars in compensatory and punitive damages to defrauded business owners after proving that they were induced into or kept in unfair deals by false financial information. That experience informs how we structure our own freeze-out and squeeze-out cases.

Remedies: More Than Just a Buyout

In some situations, the right remedy is a fair-value buyout of the minority owner’s interest, supervised by the court and informed by independent valuation. In others, injunctive relief to stop ongoing diversion of assets or to restore a client to management is critical. Where fraud or willful misconduct is involved, we also seek punitive damages to deter similar conduct in the future.

Because freeze-out tactics can overlap with libel—such as when majority owners make false accusations about a partner to justify their removal—we are prepared to add defamation claims when warranted. Our experience protecting reputations in offline and online settings gives us additional tools when smear campaigns accompany financial misconduct.

What Sets Our Freeze-Out Practice Apart

Our work in squeeze-out and freeze-out cases stands out because we:

Combine corporate, commercial, and tort theories to put maximum pressure on wrongdoers;
Use forensic accounting early to understand where the money has gone and what the business is truly worth;
Are comfortable litigating cases that involve complex deal documents, multi-entity structures, and overlapping personal and business relationships; and
Understand that for many clients, these cases are about more than money—they are about vindication and the ability to move forward.

That mix of legal and financial sophistication is especially important in closely held businesses, where personal relationships and family dynamics often collide with corporate governance. Continue reading ›

Enforcing Noncompetition Agreements is Tricky Business

December 8, 2010 | Peter S. Lubin and James V. DiTommaso

Any business owner should keep abreast of laws and court rulings that can affect the way they conduct their operation and interact with employees. The law constantly evolves, and that is why our lawyers are vigilant in tracking changes that affect our clients. Citadel Investment Group v Teza Technologies is one such ruling that provides clarity regarding noncompetition agreements between employees and employers.

In this case, Defendants Malyshev and Kohlmeier worked for Plaintiff Citadel Investment Group until February of 2009, when they resigned. When Malyshev and Kohlmeier were initially hired by Citadel, they each signed a nondisclosure agreement and an employment agreement containing a noncompetition clause. The noncompetition clauses contained language giving Citadel the discretion to set the length of the restrictive period at zero, three, six, or nine months. Citadel elected for a nine month restricted period for both Malyshev and Kohlmeier upon their resignation.

Malyshev and Kohlmeier formed Defendant Teza Technologies two months after leaving Plaintiff Citadel in April of 2009. When Citadel discovered the existence of Teza and its status as an entity performing similar high frequency trading in July of 2009, the present legal proceedings began. Plaintiffs initially sought a preliminary injunction against Defendants based upon the noncompetition agreements signed by Malyshev and Kohlmeier. This injunction was granted in October 2009 for relief through November of 2009. The trial court made its decision based upon the agreed upon nine month period contained in the noncompete and calculated the time from February of 2009 when Malyshev and Kohlmeier resigned.

Citadel appealed the decision, and asked the appellate court to grant the injunction for nine months from October until July of 2010. Citadel argued that they had not received the benefit of the restricted period prior to the preliminary injunction being entered, and the Court should adjust the start date of the restricted period accordingly. The Court did not find the Plaintiff’s argument persuasive and denied the appeal because the plain language of the agreements signed by Malyshev and Kohlmeier contained no provision allowing for an extension of time or modification of the commencement date. Thus, the restrictive covenant properly ended in November as was required by the agreement signed by both parties.

Citadel Investment Group v. Teza Technologies serves as a warning to business owners who utilize noncompetition agreements and a potential boon to employees who sign them. Whether you are a business already in a dispute over a noncompetition agreement or a former employee seeking employment with a new company in the same field, you should contact a Chicago business litigation attorney to be apprised of your rights.

Using Forensic Accountants and Certified Fraud Examiners in Shareholder, Business, Divorce and Commerical Litigation

July 23, 2008 | Peter S. Lubin and James V. DiTommaso

As Chicago business, shareholder rights and commercial law litigators, we frequently handle cases involving allegations of business fraud or financial mismanagement, often as part of complex business dispute, that require significant expertise in financial issues. When handling a divorce involving a family business or other closely held company, we also sometimes find we need an expert’s help properly valuing the business, so we can help our clients get the most equitable possible distribution of marital property.

Our Chicago, Oak Brook, Wheaton and Naperville business trial attorneys have handled many complex business and commecial law litigation matters which have involved presenting or cross-examining accounting witnesses.

While we’re confident in our legal skills, these situations call for specialized financial skills. To give our clients the best possible representation in business, shareholder and other commercial disputes, we sometimes retain a forensic accountant or fraud examiner. Both of these jobs are twofold: They help attorneys and their clients understand the complex financial aspects of their cases, and they may also be called to testify as expert witnesses. A forensic accountant’s job is to examine a person or corporation’s accounts “cold,” from the outside; the subject isn’t generally expected to cooperate. Similarly, a fraud examiner delves deep into a company’s finances, looking for the source of anything that seems inconsistent or suspicious. Both can serve as expert witnesses who help establish the value of a business or testify to the existence of fraud.

Shareholders Cannot Sue Bank One Officers, Appeals Court Decides

July 22, 2008 | Peter S. Lubin and James V. DiTommaso

In a shareholder derivative action related to 2004’s merger between Bank One and J.P. Morgan Chase, the Illinois First District Court of Appeal upheld the dismissal with prejudice of a complaint filed by Bank One shareholders. Shaper v. Bryan, No. 1-05-3849 (March 8, 2007).

The dispute grew out of the high-profile merger of Bank One with J.P. Morgan Chase. As part of the deal, J.P. Morgan agreed to issue stock to each Bank One shareholder worth 14% more than the Bank One shares’ closing price on the day of the merger. In other words, Bank One shareholders received extra value as part of the deal. Bank One CEO James Dimon would serve as president and COO of J.P. Morgan Chase for two years, after which he would take over for the existing CEO. These two men negotiated both the premium and the succession plan themselves.

Media reports soon appeared, suggesting that Bank One shareholders could have gotten a much larger premium from another company or through another negotiator. The media also reported that Dimon was eager to move to New York and take over as the leader of J.P. Morgan Chase, offering to do the deal for no premium at all if he could start as CEO without waiting the two years.

Will Executor’s Bad Faith Trumps Shareholder Stock Redemption Agreement By Decedent

July 21, 2008 | Peter S. Lubin and James V. DiTommaso

In a shareholder and breach of fiduciary duty dispute arising from a probate case involving a closely held corporation with two shareholders, the Illinois Third District Court of Appeal has ruled that a shareholder agreement made by a decedent does not allow the remaining shareholder to execute the decedent’s will in bad faith. In re Estate of Talty, No. 3–06–0669 (Oct. 29, 2007).

Thomas Talty owned 50% of a closely held corporation (an auto dealership in Morris, Illinois), with his brother William Talty. They each also owned half of the land the dealership was built on, and had an interest in half of an adjoining parcel of land owned by a land trust. Thomas wrote a will in 2000 naming William as executor and naming Thomas’s wife, Helen Talty, as sole residual beneficiary of the estate.

The will gave William the right to purchase Thomas’s shares of the dealership from his estate, but required that the purchase price be determined by an independent appraiser appointed by the probate court. Similarly, it gave William the right to purchase Thomas’s half of the land, but at fair market value set by an independent appraiser approved by the probate court. Separately, in 2001, William and Thomas made a corporate agreement allowing their company to buy the shares of any deceased shareholder. It specified that the fair market value of the shares should be determined by an accountant agreed on by the company and the decedent’s representative, or, if they couldn’t agree, appointed by the probate court.

Shareholder May Withdraw Complaint, Appeals Court Rules in Corporate Dispute

July 18, 2008 | Peter S. Lubin and James V. DiTommaso

A minority shareholder may withdraw his complaint under the Illinois Business Corporation Act of 1983, because the majority shareholder failed to meet requirements of that law, the Illinois Third District Court of Appeal ruled in an Illinois shareholder dispute lawsuit. Lohr v. Havens, 3-06-0930 (Nov. 11, 2007).

Charles Lohr owned a large minority of the stock in Phoenix Paper Products, Inc., a closely held private corporation in Illinois. He and another shareholder, James Durham, became concerned about possible financial mismanagement by the majority shareholder and president, Terry Havens, and their accountant, Samuel Morris. In months of correspondence, they accused Havens and Morris of taking unspecified inappropriate actions without shareholder approval.

This culminated in a 2003 lawsuit by Lohr alleging that Havens and Morris were misusing the company’s resources and acting illegally. Count I of the suit asked the court to either order a buyout of all Lohr’s stock or dissolve the company. Havens filed a timely election to buy Lohr’s shares, but Lohr accused Havens of illegally doing this without shareholder approval. After two years of discovery, Lohr asked to withdraw Count I and its associated demands, but Havens objected. The trial court found that because Havens hadn’t notified shareholders about the election, it was invalid, allowing Lohr to dismiss Count I of his complaint. Havens appealed.

Respected Law Professor’s Insights on Corporate Freeze-Out Litigation

July 16, 2008 | Peter S. Lubin and James V. DiTommaso

Experienced Illinois business litigators probably recognize Professor Charles W. Murdock of the Loyola University Chicago School of Law as a former Illinois Deputy Attorney General, former Loyola Dean and expert on Illinois business law. Given his status, it was with great interest that we read some of his scholarship on the concept of fairness in conflicts between shareholders or other parties interested in a business, especially in situations where the majority is using its greater power against a minority. These papers are a few years old, but they directly address some of the issues that are important to our firm and our clients in corporate freeze-out or squeeze-out litigation, breach of fiduciary duty and other internal business disputes in closely held companies.

In Fairness and Good Faith as a Precept in the Law of Corporations and Other Business Organizations, 36 Loy.U.Chi. L.J. 551 (2005), Murdock addresses the fiduciary duty of good faith and fairness that controlling interests of a business owe to minority interests. Noting that this internal duty is a fairly recent legal phenomenon, he surveys caselaw on the subject from around the country that applies to closely held corporations, public corporations and LLCs. Noting that the Uniform Limited Liability Company Act (ULLCA), a model law adopted by several states, doesn’t include language that gives members of an LLC fiduciary duties to one another, he praises Illinois for modifying that language to protect members in the updated Limited Liability Company Act.

Another of Murdock’s articles that directly addresses issues important to us is 2004’s Squeeze-outs, Freeze-outs and Discounts: Why Is Illinois in the Minority in Protecting Shareholder Interests?, 35 Loyola Chicago L.J.737 (2004). As you might expect from the title, Murdock argues in the article that Illinois business law, despite its “pro-shareholder” reputation, fails to protect minority shareholders in “fair value” proceedings. (Fair value proceedings are intended to resolve conflicts when majority shareholders want to do something that would harm the minority shareholders.) Until recently, those proceedings often led to marketability and liquidity discounts imposed on minorities, and the courts usually allowed it — giving rise to Murdock’s criticism. However, amendments to the Illinois Business Corporation Act in 2007 prohibited these discounts “absent extraordinary circumstances.” While the article is now out of date, fortunately for minority shareholders in Illinois, it still provides good arguments for the change and a survey of common circumstances under which fair value proceedings might arise.