Owners of a Florida corporation enjoy a set of shareholder rights and privileges which are provided for in the Florida Statute
However, many investors are unaware of their rights as shareholders of a Florida corporation. While a shareholder may not enjoy free rides for life if he or she owns stock in the Disney company, there are other rights and privileges that come with being a shareholder.
A corporation has two main classes of equity ownership – common shares and preferred shares
The common shareholders are part owners of the business and if the company turns profitable, the common shareholders will benefit the most. However, if the company does not succeed and instead goes bankrupt, the common shareholders most often get close to nothing, if anything at all. In contrast, preferred shareholders do not experience such a drastic price fluctuation.
In case of bankruptcy and liquidation preferred shareholders are paid before common shareholders. Similarly, when the company makes distributions, the preferred shareholders are paid prior to common shareholders. The bottom line is that common shareholders take the greatest risk, but they can also reap greater rewards. In addition to enjoying the bigger rewards, common shareholders also have voting privileges that preferred shareholders do not have.
In Florida, the main common shareholder rights include:
- Voting Power. Unlike preferred shareholders, common shareholders have voting power to elect directors, sell substantially all of the assets and propose major changes in the company such as a merger, acquisition or liquidation.
- Ownership of the Company. While common shareholders are worse off during bankruptcy, in prosperous times common shareholders own a piece of a company that has value. In other words, common shareholders own a portion of valuable company assets. As the company’s assets generate profits and the profits are reinvested, the common shareholders see the value of their shares increase as the price per share appreciates.
- Right to Transfer Ownership. Common shareholders have the right to transfer or sell their shares if they choose to do so.
- Right to Dividends. Common shareholders have a right to participate in profits and receive dividends anytime the company’s board of directors declare a dividend. With profits the management of a corporation has two options, to pay them out as dividends or reinvest them in the firm.
- Right to Inspect Corporate Books and Records. In the case of privately held corporations, a shareholder must make a demand to inspect the corporate books and records at least five business days prior to the date of inspection. Shareholders have a right to inspect and copy the records of the corporation but only after sending the written demand to the company. Once the company receives the demand, a shareholder can inspect corporate books and records including minutes of meetings of the board of directors, committees and shareholder, records of actions taken without a meeting, accounting records and any other corporate books and records related to the purpose of the demand. If the requesting shareholder gives the corporation written notice at least 15 days before the inspection date, the shareholder has the right to inspect and copy the corporate bylaws and the names and business addresses of the company’s current officers and directors.
- Right to sue. Shareholders have the right to sue on behalf of the corporation when they have been wronged. The suit is called a derivative suit and it is basically a lawsuit brought by a shareholder personally or as part of a class action on behalf of the corporation against third parties—executive officers and directors. Derivative lawsuits are usually brought for fraud or mismanagement on the part of the company’s directors or executive officers.
Often shareholders do not know their rights and directors, executive officers and other shareholders can take advantage of their business interests. If you believe that your rights are being infringed upon it is recommended to consult an attorney.
Malescu Law P.A. – Business Lawyers