What is a Florida Shareholder Derivative Action?

What is a Florida Shareholder Derivative Action?

What is a Florida Shareholder Derivative Action?

When a Florida business organizes as a limited liability company (LLC), ownership interest in the business will belong to LLC members. LLC members own shares in the company and therefore have a financial stake in its operations and performance. These individuals also have certain rights and responsibilities concerning the enterprise. If a shareholder believes there is an issue with another shareholder or the company, they may have grounds to seek legal recourse through a shareholder derivative action. What is a Florida shareholder derivative action?

What is a Shareholder Derivative Action?

A shareholder derivative action is a lawsuit that is filed by a shareholder on behalf of a company or corporation. These types of claims are usually filed against a third-party such as a board member, officer, or company executive. Shareholder derivative actions are brought to protect the shareholder’s interest from the third party’s actions.

Types of Shareholder Derivative Action Claims

Shareholder derivative action claims can be brought for various issues related to how the business is being operated or managed. Some of these lawsuits may include but are not limited to claims such as breach of fiduciary duty, conflict of interest, improper accounting practices, and issuing misleading and incorrect financial reports.

Filing a Florida Shareholder Action

Shareholder derivative actions can be brought under Florida and federal law. These lawsuits can be filed by anyone who was a shareholder at the time of the alleged conduct. There may also be grounds to file if you are a shareholder who received shares from someone who held them at the time of the alleged offense.

Filing a Shareholder Derivative Action Suit

If you are a shareholder and believe there is an issue with how the company is being governed or operated, you should contact an experienced Florida business attorney. You and your business lawyer can review your concerns and discuss your options.

If you decide to proceed with your derivative action, under Florida law, the first step will be to send a written demand to the board of directions. The purpose of the demand is to put them on notice of the alleged violations and to request that they address and correct the issues(s). The board will have 90 days to remedy any problems. However, the board has the option to reject your request. If there is a rejection, the shareholder may be able to proceed with their suit without waiting 90 days.

Shareholder Derivative Actions and Demand Futility

Demand futility refers to the requirement that the complaining shareholder must:

  • Raise the alleged issue with the board or other appropriate authority before filing a shareholder derivative suit.
  • Show good cause for not waiting for the company to respond to their demand, or
  • Show good cause for not taking the matter before the board or other appropriate authority before taking action.

The court must approve derivative action lawsuit settlements and dismissals.

Derivative action lawsuits can be complicated, and it’s important to have the right advice and information before, during, and after a claim is raised. If you are a shareholder or company officer and believe there is potential for a shareholder derivative action, you should contact an experienced Florida business attorney as soon as possible to discuss the matter.

Contact an Experienced Florida Business Lawyer

Attorney Richard Sierra at the Florida Small Business Legal Center assists clients like you with commercial leasing, business, and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.

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