No Written Shareholder Agreement? A Survey of Florida Shareholders' Statutory Rights.

• Author: Assouline, Eric N.

Ashareholders' rights and obligations in a Florida corporation generally derive from two main sources: the corporation's governing documents, such as articles of incorporation, bylaws, and any shareholder agreements; and, those default rights and obligations set forth in the Florida Business Corporation Act. In practice, however, most shareholders of Florida corporations' do not take the time to enter into a shareholders' agreement. While both majority and minority shareholders have rights under the Florida Business Corporation Act, these rights are particularly important for a minority shareholder who does not have the power to control the corporation through a majority vote. This article provides a survey of most of the shareholders' rights that derive from the Florida Business Corporation Act. (1)

Voting Rights

Unless the articles of incorporation or the Florida Business Corporation Act provide otherwise, all outstanding shares are entitled to one vote on each matter submitted to a vote at a meeting of shareholders. (2) A shareholder may exercise voting rights in person or by "proxy." (3) To exercise voting rights by proxy, the shareholder must appoint a proxy to vote or otherwise act for the shareholder by signing an appointment or by electronic transmission. (4) A proxy is valid for a maximum of 11 months unless the appointment expressly provides for a longer period. (5) A proxy is revocable unless the appointment conspicuously states that the interest is irrevocable and is coupled with an interest. (6)

In an election of directors, each shareholder who is entitled to vote has the right to vote the number of shares the shareholder owns for as many persons as there are directors to be elected and for whose election the shareholder is entitled to vote. (7) Cumulative voting is allowed only if explicitly provided for in the corporation's articles of incorporation. (8) Generally, directors are elected by a plurality of votes cast by the shares entitled to vote, unless the articles of incorporation provide otherwise. Another exception is when the board of directors or shareholders of a corporation with shares listed on a national securities exchange adopt a bylaw requiring a greater voting requirement. (9)

Florida provides shareholders with the right to create voting trusts. (10) Forming a voting trust with other shareholders can be useful for minority shareholders because it provides a voting block that is more powerful than the sum of its parts, as to the interests of the individual minority shareholders. (11) To effectuate a voting trust, a trustee must fle a voting trust agreement and a list of trust benefcial owners with the corporation at its principal offce. (12) A voting trust agreement is an agreement in which one or more shareholders confer "on a trustee the right to vote or otherwise act for him or her or for them, by signing an agreement setting out the provisions of the trust and transferring their shares to the trustee." (13) The list of trust benefcial owners fled with the corporation must include the "names and addresses of voting trust benefcial owners, together with the number and class of shares each transferred to the trust." (14) The Florida Business Corporation Act also confers on all shareholders and benefciaries of such trusts the related right to inspect all voting trust flings at the corporation's principal offce during business hours. (15) The Florida Corporations Act provides instruction as to voting blocks that may be defned by statute as having restricted controls.

Actions that May or Must be Taken by Shareholders

Below is an outline of shareholder rights and limitations on those rights with regards to voting on specifc corporate actions.

* Shareholders' Right to Remove Directors--Shareholders may remove directors by vote, with or without cause, unless the articles of incorporation state directors may be removed for cause only. (16) Shareholders may remove directors at a shareholders' meeting if notice of the meeting states at least one of the purposes for the meeting is the removal of the director. (17) To remove a director, the number of votes in favor of removal must be greater than the number of votes against removal, unless the articles of incorporation or bylaws authorize cumulative voting. Under cumulative voting, a director may not be removed if the number of votes against his or her removal equals or exceeds the number of votes that would be suffcient to have him or her elected. (18)

* Shareholders' Right to Approve Voting Rights with Regard to Control-Share Acquisitions--Generally, the Florida Business Corporation Act does not give shareholders any statutory rights over another person's acquisition of shares in a corporation except as to "control-share acquisitions." (19)

The Florida Business Corporation Act defnes a control-share acquisition as an "acquisition...by any person of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares." (20) Control shares are shares that, when acquired, would immediately give that shareholder the power to either vote or direct the vote of over one-ffth of all the voting power in the election of directors in an issuing public corporation. (21) An issuing public corporation is any corporation that has:

1. One hundred or more shareholders; 2. Its principal place of business, its principal offce, or substantial assets within [Florida]; and 3. Either: a. More than 10 percent of its shareholders reside in [Florida]; b. More than 10 percent of its shares are owned by the residents of [Florida] or c. One thousand shareholders reside in [Florida].

   Unless a corporation's governing documents provide that [section]607.0902 does not apply to control share acquisitions, control-shares acquired in a control-share acquisition will only have the same voting rights as they did prior to the control-share acquisition unless those voting rights are granted by shareholder resolution. (22) Such a shareholder resolution requires approval by:

1. Each class or series entitled to vote separately on the proposal by a majority of all the votes entitled to be cast by the class or series, with the holders of the outstanding shares of a class or series being entitled to vote as a separate class if the proposed control-share acquisition would, if fully carried out, result in any of the changes described in s. 607.1004; and

2. Each class or series entitled to vote separately on the proposal by a majority of all the votes entitled to be cast by that group, excluding all interested shares. (23)

   * Shareholders' Right to Vote on Amendment of Articles of Incorporation --Sections 607.1001 through 607.1009 of the Florida Business Corporation Act govern amendments of a corporation's articles of incorporation. Most amendments to a corporation's articles of incorporation can be made by the board of directors without shareholder participation. (24) However, if a corporation has 35 or fewer shareholders, F.S. [section]607.1003(7) allows a corporation's shareholders to amend the articles of incorporation without an act of the directors at a properly noticed shareholders' meeting.

   Furthermore, F.S. [section]607.10025, specifes that any amendment to the articles of incorporation effectuating a combination or division of shares resulting in the rights or preferences of the holders of any outstanding class or series being adversely affected, or the percentage of authorized shares remaining unissued after the share division or combination exceeding the percentage of authorized shares that was unissued before the division or combination, requires shareholder approval. With respect to divisions and combinations not requiring shareholder approval, F.S. [section]607.10025(5) (2021) states the board of directors must provide written notice to its shareholders setting forth the material terms of any division or combination within 30 days of effectuating such an amendment without shareholder approval.

   Where shareholder approval is required for an amendment to the articles of incorporation, the board of directors shall recommend that the shareholders approve the amendment, unless the board of directors determines that a confict of interest or other special circumstances exist. (25) Once the recommendation is made, the approval of the amendment requires the approval of the shareholders at a meeting (26) at which a quorum consisting of at least a majority of the shares entitled to be cast on the amendment exists. (27) If a proposed amendment to the articles of incorporation reduces a shareholder's shares to fractional shares that the corporation has a right to repurchase, a shareholder would have a right to dissent...