Shareholder Derivative Actions in Florida: What is Demand Futility?
A shareholder derivative action is a suit brought by a shareholder on behalf of the corporation. In most cases, the lawsuit is filed against a corporate officer, director, or other insider accused of misconduct. Shareholder derivative claims are complicated. There are strict rules and standards that must be satisfied to bring a successful shareholder derivative action.
In January of 2020, the reformed Florida Business Corporation Act took effect. Among other things, the statute clarifies that Florida is a ‘demand futility’ state for shareholder derivative lawsuits. In this article, our West Palm Beach shareholder dispute attorneys explain what you need to know about Florida’s demand futility standard.
Demand Futility and Shareholder Derivative: An Overview
Generally speaking, it is up to corporate directors or other corporation decision-makers to decide if pursuing legal action is in the best interests of the company. In a shareholder derivative claim, an individual shareholder or a group of shareholders is filing a lawsuit for the corporation itself. The demand futility standard only allows shareholders to bring a derivative action if they have no other reasonable options. Under Florida law, a court will only allow a shareholder derivative lawsuit to move forward if the plaintiff can prove that:
- Demand Was Refused or Ignored: The shareholder(s) did make a demand for action to the board of directors, but it was denied or ignored—meaning that remedy has been fully exhausted.
- Demand is Pending, but Immediate Action is Needed: A demand for action was made to the board of directors, and although no decision has been made, immediate relief is needed to prevent irreparable harm.
- There is a Good Reason Not to Make a Demand: No demand was made to the board of directors, but the shareholder can present a good reason for going directly to the court instead.
In other words, Florida’s legal standards encourage shareholders to bring their issues directly to the board or other authority at the corporation. To be eligible to file a shareholder derivative lawsuit, a shareholder must prove that they have already done so without satisfactory results or that they have a good reason for going to the court before getting a decision from the board of directors or without going to the board of directors.
Plaintiffs Must Satisfy Demand Futility Requirements
If you are preparing to bring a shareholder derivative action in Florida, you must satisfy the state’s demand futility standard. It is a core pleading requirement. If the court determines that a plaintiff failed to meet its duties under the Florida Business Corporation Act then the shareholder derivative will be dismissed without a hearing.
Get Help From a Shareholder Derivative Lawyer in South Florida
At Pike & Lustig, LLP, our West Palm Beach shareholder rights attorneys have the knowledge and experience that you can rely on. If you have any questions about shareholder derivative actions and demand futility, we are here to help. Call us now for a strictly confidential review of your case. We have a primary office in West Palm Beach and a second office location in Miami.