Types of Shareholder Agreements in Florida and What They Are For
A shareholder agreement is an essential foundation on which every successful corporation is built. A shareholder agreement is a document that outlines the regulation by which the corporation is run, which is especially important for businesses that involve more than one person investing money in the company.
Types of Shareholder Agreements in Florida
Generally, Florida law recognizes two forms of shareholder agreements:
- A legal document that allows shareholders to vote their shares in a specific manner (the so-called “voting agreement”); and
- A legal document that enables shareholders to override the default provisions and rules imposed by the Business Corporations Act.
The first type is governed by Section 607.0731 of the Florida Statutes. This shareholder agreement allows shareholders to agree in writing to vote their shares in a specific way. For example, one of the types of voting shareholder agreements is the agreement to dissolve the corporation after 5 years. All parties to the agreement or any subsequent recipients of those shares would be required to vote for dissolution after 5 years. As of January 1, 2020, this type has been officially named as a “voting agreement.” This shareholder agreement does not require unanimity of the shareholders.
The second type is more common than voting agreements and is more vital to small business owners. This type of shareholder agreement allows shareholders to override the default provisions imposed by the BCA. However, the shareholders’ ability to revoke those provisions are limited.
What Can a Shareholder Agreement Do?
When creating a shareholder agreement, shareholders are limited to the following specific actions:
- Eliminating the board of directors
- Restricting the authority of the board of directors
- Authorizing distributions to shareholders when they are not in proportion to the number of shares owned
- Establishing rules regarding who can be a director or officer
- Establishing rules regarding shareholder voting
- Imposing restrictions on shareholders, directors, and officers
- Requiring dissolution within a specified amount of time or upon the occurrence of a specific event
- Allowing shareholders to exercise corporate authority when there are no decisions from the board of directors
- Requiring shareholders to reimburse the corporation’s attorney’s fees upon bringing an internal corporate claim or initiating business litigation
- Setting a mechanism for resolving a deadlock among the shareholders or directors
- Establishing rules governing the exercise of management of the corporation or corporate powers (as long as the rules do not violate provisions of the BCA or public policy)
What You Need to Know About Shareholder Agreements
Unlike a voting agreement, this type of shareholder agreement requires unanimity among all shareholders, which must be set forth in writing. This type of contract can be modified or terminated only with the unanimous consent of all shareholders who signed the document or subsequent recipients of their shares.
Florida law also protects subsequent shareholders who may not know about the shareholder agreement. Thus, a subsequent shareholder has the right to rescind his or her purchase of shares within 90 days of learning about the agreement. Typically, the right of rescission expires after two years.
Due to the complexity of shareholder agreements, it is advised to have a skilled lawyer draft it. If there has been a shareholder dispute or you were involved in litigation over a shareholder agreement, speak with our West Palm Beach shareholder & partnership disputes attorneys. Contact Pike & Lustig, LLP, to discuss your shareholder’s rights. Call at 561-291-8298 today.