Illinois Limited Liability Company 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 ›

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.

LLC Members Owe Company, Manager No Fiduciary Duty, Appeals Court Rules

July 17, 2008 | Peter S. Lubin and James V. DiTommaso

Only managers in manager-operated limited liability corporations have a fiduciary duty to the company or to other members, the First District Court of Appeal ruled in a usurpation of corporate opportunity lawsuit involving a closely held LLC. Katris v. Carroll, No. 1-04-3639 (Dec. 23, 2005).

Peter Katris was one of four members/officers and two managers of an Illinois limited liability corporation, Viper Execution Systems LLC. Viper LLC was formed to market a type of options-related software, also called Viper, written by LLC member Stephen Doherty for member Lester Szlendak. Its articles of organization specified that management was vested in Katris and the other manager, William Hamburg.

Defendant Patrick Carroll employed Doherty before and during the organization, and defendant Ernst & Company later hired Doherty to work with Carroll. Their work included the writing of another software program, WWOW, which Katris believed was functionally similar to Viper. Five years after the organization, Katris sued Carroll and Ernst for collusion and usurpation of corporate opportunity because of WWOW’s similarity to Viper. (He also sued Doherty for collusion and breach of fiduciary duty, claims they later settled.)

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.