Understanding The Rights Of Minority Shareholders

In many companies, there are shareholders, and minority shareholders. And while it may seem like minority shareholders have little or no rights, they actually do have rights, and the ability to affect how the company is run. And if you are the company, it is important to be aware of the rights that your minority shareholders have.

How Minority Shareholders May be Abused

Minority shareholders can often and easily find themselves abused—whether it seems that way, or whether it is actually happening. For example, a minority shareholder may be frustrated that corporate profits are being reinvested in the business, instead of being paid out to shareholders in the form of dividends.

Worse—and perhaps, a bit more insidious—majority shareholders who are also officers of the company, may increase their own salaries, or the expenses the company is paying for them, so as to reduce the amount of corporate profits made by the company, thus lowering or eliminating completely, dividend payments to minority shareholders.

What are Your Rights?

What rights does a minority shareholder have? The answer often lies in the corporate documents. The most important documents for a minority shareholder, is the shareholder’s purchase agreement, which likely detailed your rights when you purchased the shares, as well as the company bylaws or managing agreement.

These documents often detail specifically what shareholders, minority and majority can and cannot do. They also will detail the obligations the company and its officers owe to its own shareholders.

You also have a right under Florida law, to inspect the books and records of the company. Majority shareholders or corporate officers, unaware of this right, will often, wrongfully, deny minority shareholders the ability to look at corporate books and records.

Derivative Lawsuits

Shareholders do have a right to file what is known as a shareholder derivative lawsuit. These are lawsuits where the shareholder, on behalf of the company, sues the owners or majority shareholders or the officers, alleging that their actions are lowering the value of the company, and thus, the dividends owed to these shareholders.

The wrongdoing must be done to all shareholders, as a group—not just to you, individually or personally. But in cases where company officers are purposefully wasting assets or raising salaries, this is often the case. The same is true where shareholders are engaging in self-dealing—say, for example, giving contracts or corporate opportunities to their own family members.

You could not file a shareholder derivative suit in cases where, for example, you, individually, were fired from a job that you had with the company. Or where you feel that you were paid less than what you were owed for a corporate dividend; that would be an injury just to you, which is not applicable to the shareholders as a group.

Before you can file a shareholder derivative lawsuit you must give notice to the company, and they must be given the chance to address or fix the problem.

Protect your rights if you are a minority shareholder.  Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954 440-3993 today.

Sources:

flsenate.gov/laws/statutes/2018/607.07401

floridabar.org/the-florida-bar-journal/no-written-shareholder-agreement-a-survey-of-florida-shareholders-statutory-rights/