What is the Buy-Out Remedy?

The buy-out remedy is the most common judicially created exit from a closely-held corporation for an oppressed minority shareholder. It is based on the court’s inherent equitable power and is implicitly consistent with legislatively created remedies.

As described by the court in Davis v. Sheerin:

“An ordered ‘buy-out’ of stock at its fair value is an especially appropriate remedy in a closely-held corporation, where the oppressive acts of the majority are an attempt to ‘squeeze-out’ the minority, who do not have a ready market for the corporation’s shares, but are at the mercy of the majority.”

However, a judicial buy-out is an effective remedy only if the price is fair. Most courts are concerned with the concept of fairness and construe “fair value” (as opposed to fair market value with minority discounts applied) to mean that an oppressed minority shareholder should receive a pro rata share of the control value of the enterprise as a whole going concern.