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What can a shareholder do against corporate malfeasance?

On Behalf of | May 26, 2022 | Business And Commercial Law |

The corporate infrastructure of a Florida business allots certain rights and obligations to shareholders that do not address significant restrictions limiting their ability to voice dissention. Because a minority shareholder holds a small percentage of the company’s interest, their votes only permit them a relatively small voice in decisions that impact the company.

In the event of harm to the corporation from an officer or director’s breach of fiduciary responsibility, however, there are actions a shareholder can take to seek relief. When confronting conflicts that could create liability to themselves and the business, it is important for Tampa-area investors to know what their options are when seeking redress.

What roles do shareholders play?

The investments that shareholders, also called stockholders, put into a corporation create obligations by the directors to them, which include legal responsibility for all actions of the corporation, officers, employees and agents. This duty of care requires the directors to act in the best interests of the company.

Shareholders in turn have duties to the company as well as rights, which usually include:

  • A percentage of ownership
  • Ownership transfer
  • Voting rights
  • Rights to dividends

Shareholders also have the right to sue an officer or director if their actions have caused harm to the company through mismanagement or wrongdoing. In such an action, the shareholder files on behalf of the corporation for relief in the form of a derivative lawsuit.

What is a derivative lawsuit?

A derivative action is one that the shareholder brings on behalf of the corporation against a named individual who has allegedly engaged in misconduct. For the action to move forward, the shareholder must show that they informed the management or board of directors of the alleged conduct or problem and that the entities declined to act, causing harm to the company. The shareholder must then give notice to the other shareholders, inviting them to participate in the lawsuit.

In Florida, a shareholder can file a derivative action in state court or at the federal level. Although previous statutes required a 90-day waiting period during which the board could object, the demand futility standard of new legislation requires that the shareholder present justifications for the lawsuit:

  • that the board refused, rejected, or ignored their demand prior to the expiration of the 90 days from when they made the demand.
  • The reasons irreparable damage would result from the board’s ignoring the demand.
  • The reasons that the shareholder did not seek action from the board or comparable authority.