Differences in opinion among shareholders over how a business should be run can lead to disputes that have the potential to derail the company’s success. These disagreements can become self-destructive if left unresolved.
Shareholder disputes can be one of the fastest ways to bring down a business, even when the parties involved have the best intentions. While some disputes may be minor and can be resolved easily, others may escalate and require a diplomatic legal approach.
If a shareholder dispute leads to litigation, it can become quite expensive. Even if it is taken to arbitration, the conflict could still result in lost time and revenue if the parties involved become overly litigious. Typically, this leads to a long, drawn-out process in which each party focuses on defeating the other rather than reaching a productive solution.
While resolving shareholder disputes, particularly those that have escalated out of hand, can detract from running the business itself, potentially harm future profitability and growth, and potentially irreparably damage friendships and long-lasting partnerships.
Shareholder disputes are more common than one might think. According to Noam Wasserman, a best-selling author, and Harvard Business School professor, 65% of high-potential startups fail due to conflict among co-founders. It is important for business owners to understand the potential pitfalls of shareholder disputes and take proactive steps to prevent and resolve them promptly and effectively.
Shareholder Disputes Under Florida Law: What You Need to Know
When it comes to leading and directing a company, shareholders in Florida carry a great deal of responsibility. The majority shareholders typically hold the most control over decisions that can impact the future direction of a corporation. Nonetheless, minority shareholders, who make up less than 50% of a company, also have important obligations and rights.
In certain situations, shareholders may feel their rights have been infringed upon. For instance, a minority shareholder may believe that their rights have been violated, or a majority shareholder may feel that they have been wronged. Such disagreements between parties within a business are referred to as shareholder disputes and are considered a serious legal issue. However, there are various measures that any aggrieved shareholder can take to resolve disputes reasonably and quickly.
To start, it is crucial to pinpoint the root cause of the problem and identify the violated process. In Florida, one of the most common issues that can adversely affect minority shareholders is shareholder oppression. This occurs when majority shareholders engage in illegal practices that cause distress, financial difficulties, or other issues for minority shareholders. Such practices can include withholding vital information about the company, its shares, and the roles of shareholders within it. Moreover, minority shareholder oppression can occur when majority shareholders refuse to provide essential financial information about the company or when they mishandle its records. In addition, minority shareholders may also face oppression when they are stripped of their positions on the board of directors or other leadership roles. In such situations, minority shareholders must seek legal assistance as soon as possible.
When shareholders encounter violations, it is important for them to bring along as much evidence and documentation as possible when consulting with an attorney. This can aid their lawyer in determining the best course of action to take regarding the matter. Shareholder disputes in Florida can be complicated; however, a knowledgeable attorney can provide expert advice and guidance through the legal complexities that involve shares and shareholders.
It is worth noting that in Florida, majority shareholders have a fiduciary duty, which requires them to act in the best interests of the company. They are not permitted to make choices that benefit themselves while harming the company. Violating this duty constitutes a breach of fiduciary responsibility and is a significant issue. Most importantly, it can lead to the filing of a lawsuit.
Shareholders who are worried about the direction a company is taking or who believe they have been treated unfairly or manipulated should act swiftly and seek the advice of an attorney. A lawyer can provide valuable insight and assistance in dealing with shareholder disputes. It’s essential to remember that the legal system is designed to safeguard shareholders. During instances of shareholder oppression, it is feasible to reach a resolution that is both fair and appropriate for the circumstances.
Shareholder Rights
Knowing their rights is crucial for shareholders since the rights and responsibilities of a shareholder may vary depending on the relevant agreement.
According to Florida Statute 607.1602 rights may include the following:
- Access to corporate records for inspection.
- The right to file a lawsuit for wrongful acts.
- Derivative action.
- Voting power.
- Ownership
- The right to transfer ownership.
- Receipt of dividends.
Constitutional documents, such as articles of incorporation or any shareholder agreements, should outline the rights and duties of a shareholder. These agreements often grant rights that inform how a shareholder approaches resolving their dispute.
Similarly, all parties entering a partnership should have a written Business Partnership Agreement. The agreement should clearly outline the rights of all partners in the partnership. Additionally, the agreement should govern the rights and obligations of the partners, except where in conflict with partnership laws, such as the Florida Revised Uniform Partnership Act.
Common Shareholder and Partner Dispute Claims in Florida
Breach of Fiduciary Duty
Under US law, a fiduciary duty represents the highest standard of care. In a business context, various types of fiduciary relationships can arise, including those between agents and principals, partners, and boards of directors and shareholders.
Breach of fiduciary duty takes place when an individual with a responsibility to act in the interests of another fails to do so. For instance, corporate officers and managers are expected to owe a fiduciary duty to the shareholders in a corporation. Similarly, partners owe a fiduciary duty to other partners and the company. In some cases, a controlling majority shareholder may also owe a fiduciary duty to minority shareholders.
When an individual breaches their fiduciary duty, they may be held liable for any resulting damages incurred by the shareholders. Examples of breach of fiduciary duty include:
- Negligently exposing a company to liability
- Concealing significant information from partners
- Depriving shareholders of their right to vote
- Taking wrongful action to force out minority shareholders
- Failing to disclose conflicts of interest
Corporate Officer Self-Dealing
Self-dealing by corporate officers or directors is a serious breach of trust and fiduciary duty. When someone in a position of power uses that position to advance their own interests, it often comes at the expense of the company they are supposed to serve. This can take many forms, such as diverting business opportunities to a personal venture or using company assets for personal use. In addition to causing financial harm to the company and its shareholders, self-dealing can also damage the reputation of the corporation and erode trust among investors.
In Florida, corporate officer self-dealing is strictly prohibited by law. Florida Statute 607.0830 states that a corporate officer or director must act in good faith and with a reasonable belief that their actions are in the best interests of the corporation. They must disclose any potential conflicts of interest and may not use their position to obtain a personal benefit that is not available to all shareholders. Failure to comply with these requirements can result in legal action, fines, and removal from their position.
Shareholder Claims Against Directors, Officers, or Managers
As a shareholder, you expect the board of directors to act in your best interests and make sound decisions for the company. However, if you believe that a board member has breached their fiduciary duty, you may be able to take legal action to protect your investment. Shareholders can file claims against directors, officers, or managers for a variety of reasons, including self-dealing, mismanagement, and breaches of duty.
One common type of claim is a derivative suit, which allows shareholders to sue on behalf of the corporation when the board fails to act in the company’s best interest. For example, if a board member engages in self-dealing or approves a transaction that harms the company, shareholders can file a derivative suit to recover damages on behalf of the corporation.
Another type of claim is a direct suit, which allows shareholders to sue for harm done to their individual interests. This may include claims of securities fraud, breach of contract, or breach of fiduciary duty. In a direct suit, the shareholder seeks damages for the harm caused directly to them rather than on behalf of the corporation.
To succeed in a shareholder claim, you must prove that the board member breached their fiduciary duty and caused harm to the corporation or individual shareholders. This can be challenging, as boards often have significant discretion in making business decisions. However, with the help of an experienced attorney, shareholders can hold board members accountable and protect their investments.
Deadlock Disputes
A deadlock dispute can be a significant challenge for any business, particularly for smaller businesses with limited shareholders. This type of dispute occurs when there is no clear resolution on an important decision or issue, and neither party can move forward without agreement from the other.
Deadlocks often arise between business partners, where both parties have an equal say in decision-making but have differing opinions on how to move forward. They can also arise in situations where a corporate document, such as an article of incorporation, requires a unanimous vote, but one cannot be reached.
When a deadlock occurs, it can cause significant damage to the business and the relationships between the parties involved. It can lead to a stalemate, preventing any progress from being made on important decisions and ultimately causing financial harm to the business.
One way to address a deadlock dispute is through mediation or alternative dispute resolution. In this process, a neutral third-party mediator works with the parties to facilitate a resolution that is acceptable to all. This approach can be less costly and time-consuming than going to court and can help preserve the relationships between the parties involved.
Another option is to seek judicial intervention. In this case, a court can appoint a receiver or trustee to take control of the business and make decisions on behalf of the parties involved. This approach can be more costly and time-consuming, but it can also provide a definitive resolution to the dispute.
Minority Shareholder Rights
Under Florida law, minority shareholders are entitled to several fundamental legal rights that fall into the following categories:
- Voting rights – All minority shareholders have the right to vote on who controls the daily operations of the company. In corporations, they have the right to vote on the board of directors, while in LLCs, they may have the right to vote for managers.
- Inspection rights – Minority shareholders have the right to review all corporate documents and records, which is an extremely valuable right granted under Florida law (Section 607.1602).
- Distribution rights – Minority shareholders have the right to receive their fair share of profits in full. This means that they are entitled to their portion of profits, which should not be unfairly diluted or withheld.
It’s important to note that minority shareholders can face challenges in enforcing their rights, particularly in situations where the majority shareholders hold a significant amount of power. However, these legal rights provide minority shareholders with a significant level of protection and can serve as an essential tool in ensuring fair treatment and preventing abuse of power.
Overall, minority shareholder rights are critical in ensuring that all shareholders are treated fairly and have a say in the operations of the company. These rights provide a foundation for accountability, transparency, and fairness in corporate governance.
Why Do You Need A Florida Partner and Shareholder Dispute Lawyer?
Disagreements between business partners or shareholders can quickly escalate and become contentious. Our legal team understands that such disputes often involve both personal and professional matters that require skilled handling.
This is why it is essential to seek the expertise of experienced lawyers who can provide the highest level of professionalism, allowing all parties to focus on the main issues. A knowledgeable attorney can offer legal guidance and suggest tailored solutions that best suit your unique circumstances. Moreover, your lawyer can present legal options for resolving partnership disputes, such as:
- Removing the offending partner from the company.
- Pursuing a breach of partnership claim against the responsible party.
- Seeking compensation for damages through monetary awards.
- Negotiating a settlement between the parties.
The Campbell Law Group: Your Partner in Dispute Resolution
At The Campbell Law Group, we know that shareholder / member disputes can be a daunting and overwhelming experience for individuals and businesses alike. That’s why our singular focus is to help our clients achieve their goals in any dispute they face. Our commitment is to provide you with all the information you need to make an informed decision about the course of action that will yield the best results.
When it comes to resolving disputes, there are many options available, each with its own benefits and drawbacks. We take the time to carefully assess your situation and explain which strategies may be most effective for you. Whether you’re concerned about maintaining a working relationship or protecting your financial interests, we’re dedicated to providing you with the legal representation you need to succeed.
At The Campbell Law Group, we understand that every case is unique. That’s why we take a personalized approach to dispute resolution, analyzing your specific circumstances to determine the most effective and reasonable method for resolution. We explore all available options, including arbitration, mediation, and other forms of dispute resolution, to help keep your business operations running smoothly. If litigation is necessary, we’re prepared to represent your interests aggressively to protect your financial position.
We recognize that litigation can be expensive, which is why we work with both parties to find areas where alternative dispute resolution (ADR) may be appropriate. This can help to reduce costs and find a solution that works for everyone. Additionally, we offer various fee structures for our services, including reduced hourly rates, flat fees, hybrid fee structures, and contingency-based fee structures, to provide you with flexibility and affordability.
At The Campbell Law Group, our ultimate goal is to help you achieve success in any dispute you face. We understand the complexity of these situations and will work tirelessly to protect your interests while finding a resolution that works for you.
Contact us today to learn more about how we can assist you in resolving your dispute.
