If you’re a shareholder in a Florida corporation and suspect that something is wrong with how the company is being run, you may be wondering, “Do I have the right to take legal action to protect the company’s interests?”
The answer may lie in a shareholder derivative action, a lawsuit filed by a shareholder on behalf of the corporation when those in control of the business fail to act.
At Ayala Law, we represent shareholders who are serious about holding corporate leadership accountable. Below, we’ll break down what these actions involve and the top five reasons they are filed in Florida.
What Is a Shareholder Derivative Action in Florida?
A shareholder derivative action is a lawsuit brought by a shareholder, not for their personal benefit, but for the benefit of the corporation. In essence, it’s a tool used when the company’s own directors or officers are failing to protect the company’s legal rights, either due to negligence, mismanagement, or conflicts of interest.
In Florida, these lawsuits are governed by Florida Statutes §607.07401–.07430, which outline the procedures and standards for bringing a derivative claim.
Who Can File a Derivative Lawsuit in Florida?
Before diving into the reasons these lawsuits are filed, it’s important to know who is allowed to file:
- You must be a current shareholder (or were one at the time of the wrongdoing)
- You must show that you made a demand on the corporation to address the issue, or explain why making one would have been futile
- The harm must be to the corporation itself, not just to you as an individual
Now, let’s look at the most common reasons shareholders take this step.
1. Misuse or Misappropriation of Corporate Funds
“Can I sue if company leaders are misusing funds?”
Yes, and this is one of the most common grounds for derivative actions.
When corporate officers or directors use company money for personal benefit or make questionable expenditures without a business purpose, it directly harms the corporation. That harm affects the value of the company and, by extension, its shareholders.
Examples include:
- Personal expenses charged to the company
- Unauthorized bonuses or compensation
- Improper charitable donations or political contributions
If leadership is treating corporate funds like their own checkbook, a shareholder derivative suit can force accountability.
2. Breach of Fiduciary Duty by Directors or Officers
“What is considered a breach of fiduciary duty in a Florida corporation?”
Directors and officers have a fiduciary duty to act in the best interest of the corporation. When they breach this duty, by acting in bad faith, engaging in self-dealing, or putting their own interests ahead of the company’s, they can be held legally responsible.
Common examples of fiduciary breaches:
- Self-dealing transactions without full disclosure
- Conflicts of interest in contracts or deals
- Failing to exercise due care when making business decisions
A derivative action can challenge these breaches and seek to undo or remedy the harm caused.
3. Corporate Waste or Mismanagement
“Can shareholders take action against poor business decisions?”
Not every bad business decision rises to the level of mismanagement, but in extreme cases, it can justify a derivative suit.
Florida courts apply the business judgment rule, which protects directors who make reasonable decisions, even if the outcome is poor. But when those decisions are reckless, uninformed, or obviously harmful, they can cross into actionable territory.
Examples of mismanagement might include:
- Repeated failed acquisitions with no strategic plan
- Contracts signed with known untrustworthy vendors
- Allowing the company’s finances to deteriorate due to inaction
Shareholders can step in when inaction or mismanagement threatens the company’s future.
4. Fraud or Illegal Conduct by Company Leadership
“What if the company is being run illegally?”
If directors or officers are engaging in fraudulent or illegal activity, shareholders have every right, and often, a responsibility, to act.
Illegal conduct may involve:
-
- Knowingly violating regulations or tax laws
- Filing false reports with government agencies
- Concealing liabilities or material facts from the board or shareholders
A derivative action can help stop the conduct, seek restitution, and protect the company from further harm or liability.
5. Failure to Enforce the Company’s Legal Rights
“What if the board won’t sue someone who’s harmed the company?”
Sometimes, the board of directors refuses to take legal action against a third party who has caused harm to the company, whether it’s a former executive, a vendor, or another shareholder.
This is often because of personal relationships, internal politics, or unwillingness to admit wrongdoing. In these cases, a shareholder derivative suit may be necessary to force the company to assert its rights.
These situations commonly involve:
- Breach of contract claims the board won’t pursue
- Theft of intellectual property
- Failure to act on known fraud or embezzlement
Derivative actions give shareholders the power to ensure the company doesn’t leave money, or justice, on the table.
When Should You Talk to a Lawyer About a Derivative Action?
If you’re concerned about mismanagement, misconduct, or breaches of duty at the company you hold shares in, it’s important to speak with a lawyer who understands Florida corporate law and derivative litigation.
At Ayala Law, we help shareholders:
- Evaluate whether a derivative claim is appropriate
- Draft and deliver pre-suit demand letters
- File and litigate derivative actions when necessary
We represent minority shareholders, business partners, and investors across a wide range of industries, and we know how to navigate complex corporate dynamics while protecting our clients’ interests.
Final Thoughts: Protecting the Company Means Holding Leadership Accountable
Shareholder derivative actions exist for one reason: to give shareholders the power to step in when those in control of the company won’t. While these cases are complex, they play a critical role in preserving a company’s value, ethics, and long-term viability.
If you believe leadership is harming the corporation, intentionally or through inaction, contact one of our experienced business attorneys in Florida at (305) 570-2208.
You can also contact business litigation attorney Eduardo A. Maura at eduardo@ayalalawpa.com.
You can also schedule a case evaluation here.
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