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Squeezing Out Minority

The document discusses a lawsuit brought by a majority shareholder to force out a minority shareholder in a corporation. It outlines the legal basis for this action under Article 208 of Turkey's Commercial Code, which allows squeezing out a minority shareholder who is behaving in a disruptive, audacious, or damaging manner. It describes prerequisites for such an action, including the majority shareholder owning at least 90% of shares. It also discusses determining fair valuation of the minority stake in such a squeeze out.

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Karthik Shetty
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45 views3 pages

Squeezing Out Minority

The document discusses a lawsuit brought by a majority shareholder to force out a minority shareholder in a corporation. It outlines the legal basis for this action under Article 208 of Turkey's Commercial Code, which allows squeezing out a minority shareholder who is behaving in a disruptive, audacious, or damaging manner. It describes prerequisites for such an action, including the majority shareholder owning at least 90% of shares. It also discusses determining fair valuation of the minority stake in such a squeeze out.

Uploaded by

Karthik Shetty
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Squeezing out Minority: Lawsuit for Forced Exit of Minority

A disgruntled minority may also cause or aggravate an intra-shareholders disagreement, but


this is less frequent. There may be disagreements or conflicts in decisions, in points of view, or
complaints about the operation, or an organization may introduce ideas which have negative
impacts on it. We've previously seen potential legal ways for shareholders to shield equity
investments from directors, such as excluding company management from office, requiring a
special investigation of company management, or even pursuing them lawfully by liability law
litigation seeking damages. We have looked at the prospect of filing a suit against other owners
based on conduct that were perceived to be made in bad faith and solely for personal gain to
the detriment of the corporation in a cooperative relationship. A natural follow-up approach to
such activities has been suggested, which involves pressuring majority owners to buy minority
interest from others who feel marginalized by the majority's conduct and decisions. This
segment would look at the other side of the coin, where the majority has the power to oust a
minority that is seen to be harming the corporation and its operations. This is given to us by
means of a cause of action under Article 208 of the TCC, which is yet another completely new
cause of action not found in the Fonner Commercial Code. It is only fair that granting minority
escape rights as a result of oppression be matched by granting majority squeeze out rights as a
result of reason. However, as mentioned in Article 27 (3) of the CML, this cause of action is not
applicable to public businesses and is only available to non-public corporations.

Prerequisites

Article 208 is offered in the form of company arrangements to prevent minorities from interfering
with a corporation's business operations. As a result, it's necessary to remember that a
legitimate entity shareholder can only use the squeeze out right under Article 208. The following
are the requirements for such a cause of action: I the prospective applicant controlling
shareholder must own at least 90% of the company's shares directly or indirectly, and (ii) the
minority behaves against the premise of behaving in good conscience, in a destructive way
causing visible damage, or in an audacious manner. Acting frivolously or without a justifiable
cause in filing cancellation lawsuits for any (or various) shareholder, making a decision or
demanding a special audit, deferring shareholder meetings in the same way, disclosing
business secrets, bullying company management are examples of such conduct. Another option
is to abstain from voting on such business decisions that are in good conscience considered to
be in the company's best interests that need majority consent. Needless to add, these
hypothetical shareholder conduct and the exercise of those constitutional shareholder
protections do not imply that the minority has a legitimate right to be squeezed out. It's also
crucial to decide whether the minority is abusing these rights in violation of the good faith
principle, such as by attempting to obtain an unpermitted or inaccessible advantage from the
corporation or the majority shareholders. The element of consistency is often said to be a
primary deciding factor in proving the minority's bad faith or motives. Such a squeeze out
privilege should only be used against the minority shareholder who is suspected of behaving in
the manner described above, not against all minority shareholders as a result of one's supposed
actions. The squeeze out right is not self-executing in the sense that it can only be exercised by
the courts through a case filed in this regard. There is also no provision to make a share buying
bid to the minority before taking any action. Another intriguing feature is that the right granted
herein has no expiration date or time limit and can be exercised by the majority shareholder as
long as the other conditions are fulfilled. The exercise of this privilege is therefore not contingent
on the controlling shareholder or corporation suffering any financial loss as a result of the
minority shareholder's conduct. If minority acts are of the sort described here, a cause of action
for loss occurs. The language of Article 208 gives the impression that the right to squeeze out
minorities is unconstrained. The components of "disruptive conduct" by the minority, "acting
audaciously" by the minority, and "causing visible anxiety" by the minority are intentionally
vaguely worded and bound together with a "or," implying that all of the above negative
behaviors would warrant expelling the minority. It seems that the statute does not make its own
decisions. It is incredibly unlikely (and rightly so!) for a majority equity holder to boot out a
minority equity holder if proper and equal consideration has been extended and a valid
argument has been raised. Indeed, it is stated that the aim of this solution is to allow a majority
shareholder to achieve complete ownership, allowing him to retain the administrative
independence that comes with it while avoiding statutory controlling shareholder contingent
liability. Of course, the procedure M remains to be determined, and the Supreme Court will form
the limits of this solution, but the court has all the means it requires to enforce a more relaxed
practice of encouraging the majority to squeeze out the minority if the majority can present a
fairly well-prepared argument demonstrating a justifiable need to do so. From this vantage point,
it is fair to assume that a majority shareholder would first make an offer to the minority,
demanding the purchase of minority shares on mutually agreeable terms or on the majority's
terms. If the minority refuses, the majority will file the aforementioned case in order to conduct a
squeeze out based on a court-determined valuation, assuming the majority's squeeze out
appeal is considered to be "only" under the requirements outlined above.

The squeeze out price is described in the same article as the relevant trade not available based
on a court-determined valuation based on "true value" or some other value based on widely
accepted methods. The valuation must be done as near as possible to the court's judgment
date, depending on the current circumstances. The relevant pricing methodology's wording is
far from flawless. First and foremost, we mentioned that this course of action is not open to
public company shareholders, so the exchange rate is not available "is not a viable choice.
Then there's the mention of "If the exchange price has been subject to fluctuations or large
variations due to market conditions prevailing at any given time, it could be unfair to accept such
pricing, which does not necessarily reflect the actual and real price of an asset but may need an
adjustment such as averaging or averaging. Finally, we arrive at a price strategy focused on
"generally reasonable terms." This, in our opinion, simply means that a fair market assessment
must be performed in the same manner and format as required by Article 376 (3) of the TCC for
alleged insolvent firms evaluating their properties using "going concern valuation" or "enterprise
value." This would be the correct norm that the commodity (minority ownership interest) that is
being exchanged is a living entity, and the squeezing out right is being accepted in order to
(ideally) increase the company's well-functioning. As a result, for the purposes of a compulsory
buyout, the pro rata enterprise value of the stock must be the most suitable valuation tool.

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