Sometimes, despite everyone’s efforts to maintain civility and professionalism, business gets personal. Unfortunately, it can sometimes get downright ugly. If you are a shareholder in a privately held Florida corporation, you may be wondering if you can – or should pursue legal recourse to end a dispute. Here’s what you should know.

In Florida, any disagreement between shareholders over the way in which the business is managed, corporate finances, and so forth, can be classified as a shareholder dispute. These types of disputes among shareholders are most common in family and/or private corporations and typically stem from:

  • A violation of the shareholder agreement, such as the prohibited sale of shares to a competitor.
  • Differences of opinion about relocation, personnel, expenditures and so forth.
  • Conflicts between majority and minority shareholders.
  • Oppression of minority shareholders.
  • Actual or perceived violations of fiduciary duties.
  • Actual or perceived disparities in pay and/or contributions.

In any case, your ability to pursue legal recourse and the type of legal remedies available to you will depend upon the type of shareholder dispute you’re involved in.

Let’s say, for example, that you’re a minority shareholder and you’ve been treated unfairly. Perhaps the majority shareholders have refused to declare dividends or distributions when the company is profitable, or maybe they’ve diverted earnings by paying themselves too much. Maybe they have kicked you off the board, eliminated your position in management or employed other so-called “squeeze out” tactics against you.  In such circumstances, you could sue the majority owners for breach of fiduciary duty (failure to act in the corporation’s best interest) and seek monetary damages or dissolution of the company. In rare circumstances, you may also be able to seek a court-ordered buyout to recover the fair market value of your shares.

Depending on your unique circumstances, you may be able to file a derivative action in Florida state or Federal Court instead. This type of lawsuit is one that a shareholder files against a third party (usually an executive or someone on the company’s board of directors) on behalf of the company.  The defendants in these lawsuits are usually accused of fraud, conflict of interest, breach of fiduciary duty, issuing deceptive financial statements, engaging in poor accounting practices, or other improper actions.

In accordance with Florida law, you can only file a derivative action if you were a shareholder at the time of the alleged offense, or if you received your shares as the result of a legal stock transfer from someone else who held them at the time.

Furthermore, you cannot file a derivative action immediately.  Under § 607.07401 of the Florida Statutes, you must first make a written demand to the company’s board of directors that tell them to correct the alleged offense(s). Once you’ve done so, you must wait 90 days to file suit, unless you’ve been informed in writing that the board rejected your demand, or the business would suffer irreparable damage from a 90-day delay.

You should also be aware that the company’s investigation into the allegations might also delay or result in the dismissal of the suit. Specifically, most courts have the authority to put the proceedings on hold pending the outcome of an investigation and may dismiss the suit if the board or a committee convened by the board finds the claim lacks merit.

Finally, the court must approve any dismissal or settlement of the suit, and in some cases may also require that affected shareholders be informed of these developments in writing.  If the court issues a judgment in your favor, or if a settlement in your favor is reached, you may even be able to recover reasonable attorney’s fees. On the other hand, the defendant in a derivative suit may also be able to recover these fees if the court decides you brought the suit without reasonable cause.

No matter which type of legal recourse you pursue, under Florida law, you have the right to see certain financial information before or when you file the suit, as long as your demand to do so is made in good faith and for “proper purpose.” Specifically, you have the right to see:

  • Minutes of certain board, committee and shareholder meetings
  • Records pertaining to any actions taken without a meetings
  • Certain accounting records
  • Shareholder records
  • Certain information pertaining to the company’s current officers and directors
  • Corporate bylaws
  • Information pertaining to other lawsuits against the corporation
  • Any other relevant books and records belonging to or associated with the corporation

Clearly, this is a complicated issue, so it is important to get proper legal advice if a disagreement with another shareholder or shareholders has turned into a dispute. For more information about your legal rights and responsibilities if you are involved in a shareholder dispute, contact the experienced Florida business attorneys at Eskander Loshak LLP today.

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