The Rights of Minority Shareholders

Being a minority shareholder in a company can restrict many of your rights, or limit your ability to make decisions for the company, or to share in the profits of the company. But being a minority shareholder doesn’t make you a second-class citizen, or strip away all of your legal rights.

When Things Go Wrong

Minority shareholders may find themselves on the wrong end of adverse decisions made by majority shareholders. For example, they may find themselves locked out of bank accounts or of any facility owned by the company. They may find that majority owners re-invest money back into the company in order to avoid paying the minority shareholders dividends.

Majority shareholders may increase their own pay, so as to limit, reduce or eliminate any company profits that would have to be shared with minority shareholders. All of these actions may be innocent, or they may be purposeful attempts to pressure or punish minority shareholders.

Corporate Paperwork

To see what recourse a minority shareholder has, the minority shareholder should look to the incorporating documents of the company or the limited liability company. Managing agreements, operating agreements, contracts, corporate resolutions, or bylaws often will detail the exact rights of a minority shareholder, and the powers that majority shareholders have.

Looking to the Law

If none of these exist, or they are silent on these issues, the default laws are what is written in Florida law. The shareholder should determine whether the harm is being caused to the shareholder himself, or to all shareholders.

For example, if the shareholder is being locked out, or is fired from employment, that is a direct injury to that one shareholder. This is why, even if you are a minority shareholder, if you are also an employee, you should try to have an employment contract. Otherwise, your rights to continued employment, like any employee, are just at-will, and you can be fired without recourse by your employer/the majority shareholder(s) for almost any reason.

Derivative Lawsuits

If the company is wasting company profits, paying officers too much, or has a conflict of interest that is preventing the company—and thus the minority shareholders—from making money, that is injury to the company as a whole (all shareholders), and the minority shareholder can file a shareholder derivative lawsuit.

Sometimes, it may be difficult to prove whether injury is being caused to just one shareholder, or to all of them collectively. If a shareholder derivative lawsuit is possible, written notice to the majority shareholders has to be given, and shareholders have to be provided an opportunity to fix the problem, before a lawsuit can be filed.

Make sure you review documents before you invest in a company. If you will be a minority shareholder, you want to make sure that you are protected, if majority shareholders abuse or overstep their powers.

We can help you if you are having a  problem enforcing your rights in a business. Call the West Palm Beach business litigation lawyers at Pike & Lustig to help you with your business law problem.

Resource:

natlawreview.com/article/florida-now-demand-futility-state-shareholder-derivative-actions