SQUEEZE-OUTS: WHERE CORPORATE CONTROL MEETS SHAREHOLDER PROTECTION

Michael Hovhannesyan, Senior Partner
Mariam Dovlatyan, Associate, Attorney

Imagine a founder who owns 96% of a company. The business is ready for a sale, a restructuring, or a new investment. Four per cent of the shares sit with former colleagues who have stopped engaging. Should those holders be able to delay the company indefinitely? Now let’s reverse the question: should the founder be able to choose a price, transfer the shares and leave the minority to argue about value afterwards?

Those questions explain why squeeze-outs remain one of corporate law’s most revealing pressure points. A squeeze-out allows a controlling shareholder, once a legal threshold is reached, to acquire the remaining shares and bring the company under one owner. It may simplify governance and make a transaction possible. It also ends the minority’s ownership without consent.

Corporate structures evolve over time. An arrangement that made sense at formation may become increasingly cumbersome after a company scales, changes direction, or prepares for a transaction. The majority’s need to facilitate that transition is legitimate, but so is the minority’s right to receive fair value and to challenge the process. The law should make room for both.

The real issue is the quality of the exit

The debate is often framed as a choice between majority efficiency and minority protection. That framing is too narrow. A workable squeeze-out regime should answer three questions: when may the majority compel a sale, how is the decision made, and what remedy remains if the price is wrong? A high ownership threshold can answer the first question. It cannot answer the other two.

Price is especially difficult. “Market value” sounds objective, but value depends on assumptions about control, liquidity, plans, information, and the valuation date. Should the minority receive only the value of a small, illiquid stake? Should the valuation reflect the value created by combining the shares under one owner? Who bears the risk that a forecast was too optimistic or too cautious? A valuation report can help, but its label does not settle these questions.

The distinction between the value of a minority shareholding and its proportionate share of the company’s overall value may be decisive. Questions concerning minority discounts, lack of marketability and transaction-related synergies can significantly influence the compensation payable. A valuation may be technically sound while still producing a disputed result because of the assumptions on which it relies.

The process matters for the same reason. An independent expert, full disclosure of the valuation method, a properly funded payment and access to an effective challenge make a forced exit more credible. A court remedy that arrives after title has transferred can still matter, but it must be capable of correcting an inadequate price in practice. Speed for the company and a meaningful remedy for the minority are both parts of the design.

What recent courts are telling us

Recent decisions show that courts are looking beyond the percentage threshold to the way the right is used. In Korfin and Sempiola Invest (C‑225/25), the Court of Justice of the European Union held that an offer made by a person who already controls the target cannot qualify as a voluntary takeover bid under the Takeover Bids Directive. The issue arose after Slovnaft’s 98.56% shareholder sought to squeeze out the remainder. The court’s reasoning prevents an existing controller from making a new offer simply to restart the Directive’s three-month period for exercising the squeeze-out right. A statutory exit right needs a real timetable, not a clock the controller can reset.

In Svema Trade (C‑567/24), the Court examined the presumption that the price paid in a prior takeover bid is fair for a later squeeze-out. It held that the presumption is rebuttable in circumstances corresponding to those in which the earlier bid price may itself be challenged as inequitable. That is a modest but important point: a prior bid price is useful evidence, not an irrebuttable answer to a different valuation question.

Delaware’s In re Match Group decision (2024) offers a governance lesson. The case concerned a conflicted separation involving a controlling shareholder, rather than a classic cash-out merger. The Delaware Supreme Court said that where a controller receives a benefit not shared proportionally with the minority, entire-fairness review is the starting point. To obtain the more deferential business-judgment review under the MFW framework, the transaction must be conditioned from the outset on both an independent, empowered committee and an informed, uncoerced majority-of-the-minority vote. The court also stressed that every committee member must be independent. The message is practical: process protections work only if they can genuinely bargain with the controller.

The significance of this decision must, however, be considered in light of the 2025 amendments to Section 144 of the Delaware General Corporation Law. The amendments introduced statutory safe harbours for controlling-stockholder transactions, with different procedural requirements depending on whether the transaction constitutes a going-private transaction. While certain controlling-stockholder transactions may benefit from either independent committee approval or disinterested shareholder approval, going-private transactions generally require both safeguards to qualify for the procedural safe harbour, unless the transaction is substantively fair. This development illustrates the continuing evolution of the balance between transactional efficiency and minority shareholder protection.

And in Changyou.com v Fourworld ([2025] UKPC 12), the Privy Council considered a Cayman short-form merger with no shareholder vote. It concluded that minority shareholders could still use the statutory appraisal process to seek fair value, adapting the procedural steps to a transaction that had no vote. A streamlined merger process, the decision suggests, should not accidentally eliminate the remedy that makes a forced exit tolerable.

These decisions arise under different laws and do not create one global rule. Together, though, they point to a shared question: does the law let the majority complete a legitimate transaction while preserving a credible route to test fairness?

Although these decisions arise from different legal systems and transaction structures, they illustrate a common principle: the legitimacy of compulsory share transfers depends not merely on the controlling shareholder’s legal entitlement, but also on the safeguards governing the exercise of that entitlement. These developments are particularly relevant when examining Armenia’s squeeze-out framework, where statutory thresholds, independent valuation and post-transfer judicial remedies interact.

Armenia’s framework makes the balance visible

Armenia’s Law on Joint-Stock Companies already puts both sides of this debate on the page. Under Article 56.1, a shareholder holding at least 95% of the voting shares directly and alone may request a mandatory sale of the remaining voting shares. The price offered cannot be below the market value determined by an independent evaluator, selected by the requesting shareholder. The price is deposited in a special bank account. A displaced shareholder may challenge the price in court within two months, although the transfer may be entered in the shareholders’ register once the deposit is made, even if the price is challenged.

Article 56.2 gives a shareholder holding no more than 5% a corresponding right to request a mandatory purchase where a 95% holder exists. The statutory wording caps the offered repurchase price at the market value determined by an independent evaluator; the company may challenge the price, but the purchase process continues. The paired rights are a useful recognition that an almost wholly owned company can be difficult for either side: the majority wants a clean structure, while the small holder may want a real exit.

The details deserve attention. The majority-side rule sets a minimum price; the minority-side rule, on its face, sets a maximum. The majority selects the evaluator for the squeeze-out, and the shares can transfer before a court resolves a price challenge. Those features do not by themselves establish unfairness. They do raise the right questions for counsel, courts and lawmakers: how independent is the valuation in practice, what information must accompany it, and can a later price judgment provide a complete remedy?

This is where corporate structure and shareholder protection meet. A 95% threshold tells us who may start the process. Good procedure tells us whether the company can finish it with confidence.

A further question arises from the statutory concept of market value. Article 59 refers to a transaction between informed parties who are not compelled to buy or sell. Applying this standard in the context of a mandatory share transfer raises important valuation questions, particularly concerning minority discounts, the date of the valuation and the treatment of benefits arising from ownership consideration. Although independent valuation is intended to safeguard shareholders’ interests, the effectiveness of that protection ultimately depends on the assumptions used and the ability to challenge them.

The effectiveness of the Armenian framework therefore depends on more than the existence of an independent valuation requirement. Particular attention must be paid to the transparency of the valuation process, the ability of minority shareholders to obtain relevant information, and the practical effectiveness of judicial remedies. Where ownership may be transferred before a valuation dispute is resolved, the adequacy of the subsequent remedy becomes especially significant.

A practical test for founders and investors

For a controlling shareholder, the best protection is to build a record that would make sense to the person losing the shares. State the business reason for consolidation. Set out the valuation date and assumptions. Provide minority shareholders with sufficient information to understand the offer and assess the basis of the proposed price. Use a genuinely independent valuation process, ensure that the consideration is duly deposited and follow every notice and timing requirement. Where the law permits, consider independent negotiation or an informed minority vote even if neither is strictly required.

For a minority shareholder, the focus should be just as concrete: check the statutory trigger, the valuation basis, the information disclosed, the payment arrangements and the deadline to challenge. “This feels low” may be true, but a useful challenge explains why: a valuation assumption, omitted asset, distorted reference period or inconsistent treatment of comparable holders.

A majority should not have to carry a permanent minority veto over a company’s future. But a compulsory sale is credible only when the minority can see how the price was reached and has a meaningful way to contest it. That discipline makes the result more durable for the business and more defensible to the shareholder who leaves.

So, before initiating a squeeze-out, controlling shareholders should ask themselves one final question: could they explain the transaction, the price and the remedy to the shareholder being squeezed out—and still be comfortable with the answer?

SQUEEZE-OUTS: WHERE CORPORATE CONTROL MEETS SHAREHOLDER PROTECTION

The real issue is the quality of the exit

What recent courts are telling us

Armenia’s framework makes the balance visible

A practical test for founders and investors

Selected authorities