Chicago Business Litigation Lawyer Blog
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 ›