Squeeze-out – when does a minority shareholder lose their shareholder status?

This article will help you answer the following questions:

• When exactly does a minority shareholder lose their corporate status during a squeeze-out?
• How does the Polish Supreme Court judgment (III CZP 39/16) interpret shareholder rights?
• What happens to share pricing if minority shareholders challenge an expert’s valuation?
• How do parallel squeeze-out and sell-out procedures interact under the Commercial Companies Code?
• Why is a streamlined shareholder structure crucial for international corporate governance?

When does a minority shareholder lose their status?

Legal doctrine and case law distinguish between two approaches.

According to the first approach, if the price determined by an expert appointed by the general meeting is challenged by minority shareholders, the loss of shareholder status occurs on the day the final court-determined price is paid.

Under the second view, shareholder status is lost upon payment of the price determined by the company-appointed expert, regardless of any later court adjustment.

The Supreme Court, in its judgment of 14 September 2016 (III CZP 39/16), supported the latter interpretation, emphasizing the principles of legal certainty and efficiency of commercial transactions.

Although Articles 418 §1–4 of the Commercial Companies Code do not explicitly resolve this issue, a purposive interpretation and general principles of corporate law support this approach.

In practice, this means that a minority shareholder loses their rights arising from the shares at the moment the price determined by the company-appointed expert is paid.

This approach enables the prompt exclusion of minority shareholders from company decision-making, thus improving corporate governance efficiency.

A minority shareholder subject to a squeeze-out procedure is generally no longer interested in the company’s development, but rather in obtaining the highest possible price for their shares. For any expanding US startup or cross-border entity, maintaining a well-structured and transparent cap table is vital to prevent these minority conflicts from blocking critical corporate resolutions.

If the opposite approach were adopted, such shareholders could use their rights to block resolutions and exert pressure on majority shareholders, potentially leading to abuse.

At the same time, minority shareholders’ interests remain protected, as majority shareholders cannot withdraw from a squeeze-out resolution once adopted—even if a court later determines that the fair price should be higher than initially set.

The share price in parallel squeeze-out and sell-out procedures

In the context of share pricing under the squeeze-out and sell-out procedures, it is worth noting that both processes may proceed in parallel.

Although both procedures allow for judicial review of the price, the prior completion of the squeeze-out process should terminate the sell-out procedure concerning any shareholder who no longer owns shares.

The purpose of the sell-out – allowing a minority shareholder to exit the company at a fair value – can be achieved through the squeeze-out process if that process concludes first. Consequently, once the price determined by the expert has been paid, the minority shareholder loses the right to request a court-appointed auditor to determine the market value of shares in the sell-out procedure. Any alternative interpretation would result in a scenario where a shareholder could challenge the valuation twice, which would be impermissible and could lead to conflicting valuations.

Conclusion

Issues concerning the timing of minority shareholders’ loss of status and the overlap between squeeze-out and sell-out procedures are crucial for the legal certainty of commercial transactions and the protection of shareholder interests.

The current position of the Supreme Court indicates that shareholder rights are lost upon payment of the price determined by the company-appointed expert. This solution expedites the squeeze-out process, minimizes the risk of abuse, and at the same time ensures protection for minority shareholders against undervaluation.

Furthermore, once the squeeze-out procedure is completed and the shareholder loses their rights, the minority shareholder can no longer invoke rights under the sell-out procedure. The sell-out process effectively lapses upon the completion of the squeeze-out. If your business operates across multiple jurisdictions, consulting an experienced US lawyer can help you ensure full compliance with both local statutory frameworks and global commercial standards.