Freeze-out Provision

Definition - What does Freeze-out Provision mean?

A freeze-out provision refers to a provision in a corporate charter that allows a company acquiring another joint stock company to buy the target company's stocks owned by the minority shareholders for a fair value within a limited period of time.

Justipedia explains Freeze-out Provision

A freeze-out refers to the act of the majority shareholder(s) in the company forcing the minority shareholders to sell their shares. This often violates the rights of minority shareholders. Since freeze-outs are not considered good in the eyes of the law and can be overturned by courts, some corporate charters include a freeze-out provision which legalizes the process. A freeze-out is normally executed by the majority shareholder(s) of the corporation that initiates a merger with the target company.

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