Shareholders of Florida close corporations have the same inspection rights as those in ordinary Florida corporations. See Fla. Stat. Ann. § 607.1602 (West 2005). In order to have standing to exercise these inspection rights, a shareholder must make a demand on the corporation at least five days in advance of the inspection. § 607.1602(1). The demand must be made in good faith and for a proper purpose. § 607.1602(3). Upon receipt of a proper demand, a shareholder may then inspect the following documents that are related to the purpose of his or her demand: minutes of meetings of the board of directors, committees thereof and shareholders, records of actions taken without a meeting, accounting records of the corporation, the record of shareholders and any other books and records of the corporation. § 607.1602(2). If the requesting shareholder gives his demand with 15 days notice he or she also has the right to inspect the bylaws of the corporation and a list of the names and business address of the corporation’s current officers and directors. § 607.1602(4).
A corporation may refuse a shareholder demand for inspection if the suing shareholder has within the past two years sold or offered for sale a list of shareholders of any corporation, “aided or abetted” someone in doing so or improperly used information gained from a previous inspection of a corporation’s books and records. § 607.1602(6). The corporation may charge a reasonable fee for the costs and labor associated with complying with the demand and any shareholder that sells or improperly distributes information obtained may be subject to a $5,000 fine. §§ 607.1603(3), 607.1602(7).
A corporation that fails to comply with a proper demand is subject to court ordered inspection and may be required to pay the shareholder’s costs and attorneys’ fees associated with enforcing his or her inspection rights. § 607.1604. Additionally, a director of a corporation is entitled to inspect and copy the corporation’s books, records and documents for any purpose reasonably related to his duties as a director. § 607.1605(1).
Although a “proper purpose” for a shareholder inspection is not statutorily defined, the Florida courts have defined it to mean “one that is lawful in character and not contrary to the interest of the corporation” for the purpose of protecting the shareholder’s interest. Oil Conservationists, Inc. v. Gilbert, 471 So.2d 650, 653 (Fla. Dist. Ct. App. 1985). A proper purpose is not a “general fishing expedition” or the mere “satisfaction of [shareholder] curiosity.” Id.
While there does not appear to be any developed case law on shareholder oppression in close corporations, majority shareholders do owe fiduciary duties to the minority interest to not use their control of the corporation to put the minority at a disadvantage. See Tillis v. United Parts, Inc., 395 So.2d 618, 619 (Fl. Dist. Ct. App. 1981).
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation. See § 607.07401. In order to have standing to bring a derivative suit, a plaintiff must have been a shareholder at the time the cause of action arose or received the shares by operation of law from someone who held them at that time. § 607.07401(1). The purpose of this contemporaneous ownership requirement is to ensure that people instituting suits have a stake in the corporation and are motivated to protect its interests. Timko v. Triarsi, 898 So.2d 89, 90-91 (Fla. Dist. Ct. App. 2005).
A plaintiff with standing must then make a written demand on the corporation requesting that the corporation act accordingly. § 607.07401(2). The shareholder is then prohibited from bringing a derivative action until 90 days have passed after the demand was made unless the shareholder is notified that the demand has been rejected by the corporation or waiting the full 90 day period would cause irreparable injury to the corporation. Id. If the corporation then institutes an investigation into the demand, the court may stay the proceedings pending the outcome of the investigation. Id.
A derivative suit may be dismissed upon a determination in good faith and after reasonable investigation by a disinterested and independent majority of the board, a committee thereof or other appointed individuals that maintenance of the suit is not in the best interests of the corporation. § 607.07401(3). However, court approval is required before a suit may be discontinued or settled and notification of affected shareholders may be required. § 607.07401(4). Additionally, reasonable expenses and attorneys’ fees may be awarded to a successful plaintiff or a defendant upon a finding that the suit was brought without reasonable cause. § 607.07401(5),(6).
There is no direct shareholder recovery in a derivative action brought on behalf of the corporation; however, a shareholder may sue directly as an individual for injury sustained directly. Chemplex Florida v. Norelli, 790 So.2d 547, 549-50 (Fla. Dist. Ct. App. 2001).
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In order to remain on the cutting edge of business owner rights law, Fryar Law Firm keeps abreast of legal developments in all 50 states. This 50-state survey is presented for educational purposes. However, we do not hold ourselves out as experts on the law of any jurisdiction other than Texas, and we may not practice law in any other state, with the following exceptions:
The lawsuit involves a non-Texas company but may be brought in Texas courts--example, if the client is a Texan or the company operates in Texas.
We are part of a legal team that includes local counsel. Out of state legal teams benefit from our experience when we consult. We may also act as lead counsel, if we have local co-counsel and permission of the court.
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This post represents our opinion regarding the relevant shareholder oppression and minority ownership rights law. However, not everyone agrees with us, and the law is changing quickly in this area. This page may not be up to date. Be sure to consult with qualified counsel before relying on any information of this page. See Terms and Conditions.