Squeeze out is a procedure regulated by the Commercial Companies Code (CCC), otherwise known as “squeezing out of a company.” It involves the compulsory buyout of minority shareholders’ shares by majority shareholders or the dominant company in a group of companies, without the need for minority shareholders’ approval. Majority shareholders are those who collectively hold at least 95% of the share capital in a joint stock company, while a dominant company in a group of companies is one that directly represents at least 90% of the share capital. This legal mechanism is designed to ensure the smooth operation of the company, as well as to prevent the abuse of minority shareholders who expose the company to losses through their abuse.
Until 13 October 2022, squeeze out applied only to a joint-stock company. Since the introduction of amendments to the Commercial Companies Code related to the holding law, the squeeze out institution has also been extended to limited liability companies.
Squeeze out in a joint-stock company
Pursuant to Article 418 of the CCC, a general meeting may adopt a resolution on squeeze out of shares of shareholders representing no more than 5% of the share capital by no more than five shareholders holding a total of no less than 95% of the share capital, each holding no less than 5% of the share capital. The resolution requires a majority of 95% of votes cast. The Articles of Association may stipulate stricter conditions for the adoption of the resolution.
In addition, the resolution should specify precisely the shares to be purchased, the shareholders who will undertake to purchase these shares and the shares accruing to each purchaser. Shareholders voting in favor of the resolution who sought to purchase these shares are jointly and severally liable to the company for repayment of the entire buyout amount.
The provisions on compulsory buyouts under Article 418 § 4 of the CCC do not apply to public companies.
Reverse squeeze out
This is a reverse squeeze-out and applies to minority shareholders whose shares are not covered by the squeeze-out resolution. Minority shareholders, if they want to exit the company, can demand that majority shareholders buy back their shares. A reverse compulsory buyout may be aimed at wanting to exit a company where there has been such a large change in ownership. In such a situation, minority shareholders at the general meeting should make a demand for the redemption of their shares within 2 days of the general meeting, and absent shareholders within a month of the announcement of the resolution. Shareholders who do not make the demand within the deadline are deemed to have agreed to remain in the company.
Squeeze out in a limited liability company
The shareholders’ meeting or general shareholders’ meeting of a subsidiary company that is part of a group of companies may adopt a resolution to squeeze out the shares of shareholders representing no more than 10% of the share capital of a dominant company that directly represents at least 90% of the share capital. The subsidiary’s articles of association or articles of incorporation may decide that the right to squeeze out shares shall be vested in the parent company that directly or indirectly represents in a subsidiary participating in the group of companies less than 90% of the share capital of such company, but not less than 75%. In the case of a squeeze out in a limited liability company (also in a joint-stock company) belonging to a group of companies, the percentage requirements for carrying out a squeeze out of shares have changed.
The squeeze out institution primarily serves to improve the company’s operations by preventing abuse and exposure to losses by minority shareholders. In addition, it makes it possible to increase the company’s attractiveness to investors, and can also be used to create a closed or family business. In the case of minority shareholders, the benefit to them is the ability to buybacks their shares at a time when they would already like to leave the company.