Non-Corporate Freezeouts: Theory and Evidence
Corporate freezeouts (that is, transactions in which the controlling shareholder of a corporation buys out the minority shares) are subject to enhanced judicial scrutiny in the form of entire fairness review. In contrast, this form of judicial review often does not apply to freezeouts of non-incorporated business entities because the controlling shareholder of those entities […]
Guhan Subramanian is the Joseph H. Flom Professor of Law and Business at Harvard Law School and the H. Douglas Weaver Professor of Business Law at Harvard Business School and Fernán Restrepo is an Assistant Professor of Law at the UCLA School of Law. This post is based on their recent paper.
Corporate freezeouts (that is, transactions in which the controlling shareholder of a corporation buys out the minority shares) are subject to enhanced judicial scrutiny in the form of entire fairness review. In contrast, this form of judicial review often does not apply to freezeouts of non-incorporated business entities because the controlling shareholder of those entities can waive the duty of loyalty. In a recent paper, we find that this doctrinal difference is associated with significantly inferior gains for the minority shareholders in non-corporate freezeouts.
