Director and Shareholder Disputes in Florida

Director and Shareholder Disputes When One Person Holds Both Roles

Director and shareholder disputes usually come down to one question: did the harm hit the company, or did it hit you as an owner? Florida law treats those two claims differently. Closely held companies often have one person in several seats, so the line between the roles can blur fast.

Ayala Law PA focuses on business litigation, including shareholder disputes, commercial and contract disputes, construction and real estate matters.

Why one person holding both roles creates conflict

One person can be a director, an officer and a shareholder at the same time. Each role carries its own duties and rights, and they don’t always point the same way.

A director sits on the board and helps guide the corporation. An officer runs day-to-day work, such as a president or treasurer. A shareholder owns shares in the company.

Common situations include these:

• A majority owner who also sits on the board and votes on his or her own pay.
• A co-founder removed from management who still holds shares.
• An owner-manager who sets the terms of his or her own compensation.

Each example puts one person on both sides of a decision. That is where disputes start.

Claims as a director versus claims as an owner

A director claim asks whether the board broke its duty to the company. An owner claim asks whether you were treated unfairly as a shareholder.

Under § 607.0830, a director must act in good faith and in a way the director reasonably believes is in the corporation’s best interests.

Here is a simple test. Ask who took the hit.

• Questions about who owns a claim for lost value or a lost business opportunity often sit at the center of shareholder disputes.
• Questions about whether a claim is personal or belongs to the company often arise when a shareholder loses a distribution, voting power or access to records.

The same conduct can support both kinds of claim. A director who steers a deal to a related business may harm the company and the owners at once. How a dispute is framed often shapes the questions that follow.

Directors also have limited personal exposure. Under § 607.0831, a director is not personally liable for money damages unless the breach falls within listed categories, such as an improper personal benefit.

Can shareholders bring action against directors?

Yes, in some situations. The right path depends on whether the claim belongs to you or to the company.

When the injury is to the company, a shareholder may sue on the company’s behalf. This is called a derivative proceeding. Under § 607.0741, you must be a shareholder when the action is filed and must have been a shareholder when the conduct happened, with limited exceptions for shares that passed to you by transfer or by law.

Pre-suit requirements matter. Under § 607.0742, the complaint must be verified. It must also explain any demand made on the board. It must then state either that the board refused, rejected, or ignored the demand before 90 days from the demand passed, why waiting for that 90-day period would cause irreparable injury or misapplication or waste of corporate assets causing material injury to the corporation, or the reasons the shareholder did not make a demand.

Self-dealing gets extra scrutiny. Under § 607.0832, a conflict-of-interest transaction involves a director who has a material interest in a deal with the company. If the material facts were disclosed and a majority of qualified directors approved the deal, the person challenging it must prove it was unfair. One director alone cannot approve it that way.

Can a director remove a shareholder?

Removing someone from a job is different from taking away that person’s shares. Those are separate questions with separate rules.

Under § 607.0842, the board can remove an officer at any time, with or without cause. Fla. Stat. § 607.0842 reads: “(b) The appointing officer, unless the bylaws or the board of directors provide otherwise; or.” The bylaws or the board can change who has that power.

Share transfers are different. Under § 607.0627, a restriction on the transfer of shares is valid and enforceable against the holder or a transferee if the restriction is authorized by the statute and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement, and unless so noted, it is not enforceable against a person without knowledge of the restriction. Buy-sell terms are usually found in these documents, so read them first.

Board and officer positions and share ownership are separate questions in many shareholder disputes. The answer depends on the bylaws, any shareholder agreement and how the removal was carried out.

Deadlock is another route. Under § 607.1430, in a proceeding by a shareholder, a circuit court may dissolve a corporation if, among other grounds, the directors are deadlocked in managing the corporate affairs, the shareholders are unable to break the deadlock, and either irreparable injury to the corporation is threatened or being suffered or the business can no longer be conducted to the advantage of the shareholders generally because of the deadlock; or if the shareholders are deadlocked in voting power and have failed to elect successors to directors whose terms have expired. These deadlock grounds do not apply to certain corporations described in the statute, and other conditions and exceptions apply. A shareholder agreement with a deadlock sale provision can resolve the issue first, under § 607.0732.

How to prove shareholder oppression

Shareholder oppression is a common label for conduct that unfairly shuts an owner out. An example is withholding distributions while the majority owner takes a large salary. Shareholder claims are often built on a mix of rights and duties rather than a single ground.

Proof comes from records. These are the documents that often matter:

• Meeting minutes and written consents
• Financial statements and tax returns
• Bank records and distribution history
• Pay records for directors and officers
• Emails and the company’s governing documents

Distributions also have limits. Under § 607.06401, no distribution may be made if the company would not be able to pay its debts as they become due.

Each case turns on its own facts and documents. No outcome can be promised.

Who holds more power: a director or a shareholder?

Shareholders generally set the structure of control, and directors run the business day to day. The answer shifts with the company’s documents.

A shareholder agreement can change the balance. Under § 607.0732, an agreement that is either set forth or referenced in the articles of incorporation or bylaws and approved by all persons who are shareholders at the time of the agreement, or set forth in a written agreement signed by all shareholders at the time and made known to the corporation, can limit the board’s discretion and govern the exercise or division of voting power among shareholders and directors.

Majority ownership and the duties owed to other owners are often central questions in these disputes. A majority holder who also sits on the board still owes the company the duties described in § 607.0830. Overlapping roles can give one person influence that the other owners find hard to match.

Talk with Ayala Law PA about your situation

Frequently asked questions