How can a shareholder be forced out of a company?

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I remember hearing about Steve Jobs being forced out of Apple, and the McDonalds brothers being forced out of McDonald’s. In both instances, the method of forcing was a buyout, but I don’t understand how this can be considered “forcing” if they consented to sell their shares. I feel that I am misunderstanding what happened, and just want to know how a shareholder can be forced to sell their stake in a company.

In: Economics

7 Answers

Anonymous 0 Comments

If the company is about to fail, eg goes bankrupt, it might require a large infusion of cash to remain solvent and continue operating. The term “force out” does not imply use of force or even legal compulsion. It is simply that other shareholders including major ones might be proposed a deal “I will invest or lend money to the company. In return you to sell your shares to me”. Other terms might be “you will quit as CEO” etc etc. Although they can refuse, doing so likely dooms the company to close.

If enough shareholders/directors vote to accept the deal it pressures the other shareholders/directors to come along or be forced to resign as directors or face lawsuits for not fulfilling their fiduciary duty. There is a lot of deal making and politics involved.

The end result is some parties accept a deal that they may not agree with (or even be ‘fair’) just so that a worse consequence doesn’t occur.

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