Unfortunately, it is not uncanny to find majority shareholders in a business that use their majority interest in the company to impose their will upon minority owners. Nevertheless, there are laws both at the state and federal levels to protect the rights of minority shareholders.
In this article, you will discover the importance of a well-drafted shareholder agreement to protect the rights of minority shareholders in Florida.
Common Types of Tactics Used by Majority Shareholders to Jeopardize Minority Shareholders
In some situations, majority shareholders may want to jeopardize the participation of minority shareholders, usually as a way to expand their powers. Typically, this type of action involves several subtle tactics, such as:
- Locking minority owners out of access to bank accounts
- Issuing inconvenient cash calls for operating expenditures and additional capital contributions
- Stopping distributions while reinvesting profit back into the business
- Terminating the employment of a minority shareholder (if that is the case)
- Increasing the salary and benefits of majority shareholders to limit profit distributions
Occasionally, majority owners can use one or multiple of these tactics to force a minority shareholder to sell out its interest in the company
How to Protect the Rights of Minority Owners – Examining Governing Documentation
In such cases, the first step is to proceed with a detailed analysis of the company’s governing documents.
When the company is a corporate business, it must have the Articles of Incorporations and shareholders’ agreement. On the other hand, companies structured as limited liability companies (LLCs) should have Articles of Organization and an operating agreement in place.
Ideally, companies should have other additional agreements providing a closer look at the rights and obligations of their shareholders and members.
Whether there is no shareholder agreement, or the existing agreement lacks some crucial provisions, state law has provisions governing these types of issues.
The state legislation that encompasses the subject of ownership/shareholder disputes includes the Florida Revised Limited Liability Company Act (F.S. Chapter 605) and the Florida Business Corporation Act (F.S. Chapter 607).
How to Protect the Rights of Minority Owners – In Detail
Before taking legal action, minority shareholders must inspect the company’s records, as all shareholders have a statutory right to do so. However, if the majority shareholders proceed to withhold the records, it is possible to demand a record inspection in writing.
When preparing a written demand, make sure to work with an experienced business attorney to ensure full legal compliance.
After completing the inspection, minority owners must sit down and analyze the strongest claims, as well as the nature of the existing claims. Generally, those claims can either be direct or derivative.
For instance, let us say a minority owner who has been a long-term employee in a corporation was suddenly terminated by the company’s majority shareholders.
In this case, the employee’s sudden termination may not be a strong claim (unless there is an employment agreement in place). However, cases involving majority shareholders expending corporate funds on personal expenditures may expose them to significant liability in court.
After sitting down with a legal counselor and figuring out the strongest claims, it is time to assess if the harm caused by the responsible shareholders was direct, and if it was specifically pointed to a minority shareholder or equally affected all owners.
Then, it is possible to proceed with legal action or find alternative ways to resolve the matter out of the courtroom.
How to Protect the Rights of Minority Owners – The Importance of Shareholder Agreements
Regardless of the business’s segment, there is no better way to defend against minority shareholder oppression than drafting a solid shareholder/operating agreement. In this context, it is crucial to work with an expert attorney when elaborating business agreements in Florida.
Shareholder Agreement in Florida for Minority – We Can Help You to Protect Your Rights
Minority shareholder protection is a complex subject, which requires an expert approach. If you want to protect your minority rights the right way, contact Attorney Romy B. Jurado today by calling (305) 921-0440 or emailing Romy@jflawfirm.com.