Minority shareholders are at a disadvantage when internal corporate disputes arise. In some cases, these shareholders are entitled to vote on certain important decisions, such as changes to the company’s articles of incorporation. But even if they don’t have such rights, they are owed certain duties that need to be respected and, if necessary, enforced through legal remedies.
Especially in closely-held corporations, majority shareholders will sometimes try to “freeze out” minority shareholders. This means compelling minority shareholders to sell their shares, to give up their voting rights and/or to vacate management positions they hold. The following are four things minority shareholders should know about their rights in such situations:
- Minority shareholders are owed a fiduciary duty — All shareholders in a corporation are required to act in good faith toward each other and with loyalty to the corporation. This means that the minority shareholders must be given the opportunity to have their voices heard and their concerns addressed. If a freeze out or other negative action is taken against a minority shareholder without a legitimate business reason, the majority may have breached their fiduciary duty, giving rise to damages.
- Minority shareholders have the right to access company information — Under Florida law, the majority shareholders can’t withhold information that the minority shareholders are entitled to. A shareholder of a corporation has the right to inspect and copy any of the records of the corporation, such as minutes of meetings, records of the corporation’s board of directors and any records of committees of the corporation. This includes information about the company’s financial situation, as well as any proposed changes that could impact the minority shareholders’ interests.
- The shareholders’ agreement controls most disputes — One of the most common ways that a majority shareholder can force out a minority shareholder is by invoking the shareholder agreement, which almost every corporation has. The agreement may include terms and conditions for buying out a minority shareholder, including a method of determining the price to be paid.
- Minority shareholders can sue to enforce their rights and protect the corporation — If the minority shareholders feel that their rights are being ignored or violated, or that the majority shareholders are acting contrary to the corporation’s interests, legal action may be taken. This can include filing a lawsuit against the majority shareholders or against the corporation’s officers or directors.
Minority shareholders need to be aware of their rights in internal corporate disputes and must exercise them forcefully, if necessary with the help and guidance of a business disputes attorney. The more proactively minority shareholders act, the better their chances of achieving a productive settlement in a dispute.
H. Clay Parker, Esq. understands the importance of minority shareholders being aware of their rights and making sure they are protected. If you are involved in an internal corporate dispute, call 407-216-2504 or contact us online to schedule an appointment.