Does a Florida Minority Shareholder in a Closely Held Corporation Owe a Fiduciary Duty to Fellow Shareholders?

Your friend who owns 25% of the company wants to start a competing business. In Florida, it’s not clear if they owe a duty to the company and other shareholders. In Massachusetts, there are cases saying they do owe a duty. The courts in Florida have not said much on this, so it’s still a debated topic. Fiduciary duty is the legal responsibility that majority shareholders in a corporation have to treat minority shareholders fairly. This means they can’t put their own interests above the interests of the minority. However, in Florida, this duty may not apply when the majority shareholder sells their stock.

In a closely held corporation, which is like a small partnership, all shareholders are considered to have a fiduciary duty to each other. This means they have to treat each other fairly and can’t take advantage of each other. This was established in the case Donahue v. Rodd Electrotype Co. of New England, Inc., where the court ruled that all shareholders in a closely held corporation owe each other a fiduciary duty. The Donahue principle is based on the idea that in closely held corporations, shareholders owe each other a fiduciary duty similar to that of partners in a partnership. This means they must act in the best interest of the company and each other. Even minority shareholders can be held accountable for breaching this duty. Several cases have upheld this principle, even when the minority shareholder had some control over the company. In Massachusetts, the case of Wilkes v. Springside Nursing Home, Inc. refined the earlier Donahue ruling by recognizing that the majority shareholders in a closely held corporation have some flexibility in making company decisions, as long as they can show a legitimate business reason for their actions. This created an exception to the rule that all shareholders owe a fiduciary duty to each other. Similarly, the Florida case of Tillis v. United Parts, Inc. seemed to agree with the Donahue approach, but upon closer analysis, it may not fully embrace the partnership analogy and equal opportunity principle in the context of close corporations. In the state of Florida, courts have not agreed with the idea that close corporations are similar to partnerships. A previous court case called Freedman also disagreed with this idea. The court said that just because there are problems between shareholders doesn’t mean the corporation should be treated like a partnership. So, the recent Tillis decision doesn’t match up with what the Florida Supreme Court has said before. In Florida, there may be confusion about whether minority shareholders have a legal duty to the company or other shareholders. Some court rulings suggest that minority shareholders only owe a duty if they have a leadership role in the company. Florida courts often look to Delaware for guidance on corporate law, and Delaware tends to side with the view that minority shareholders shouldn’t have special legal rules. The Florida courts’ recent statement on shareholders in close corporations is found in the Zold v. Zold case. The court ruled that a shareholder in a close corporation owes a fiduciary duty to all shareholders. This means they have a responsibility to act in the best interests of the company and its shareholders. The court also found that a majority shareholder in a close corporation, like the husband in the Zold case, is considered a controlling shareholder and does not fit the profile of a minority shareholder. The Florida Supreme Court is still reviewing the case, so the final ruling is pending. Overall, the issue of whether minority shareholders in close corporations owe a fiduciary duty is a controversial one, with different viewpoints from legal experts. Because Florida law is uncertain on the rights of minority shareholders, it’s a good idea for them to have a shareholders’ agreement to protect themselves. This agreement can outline everyone’s responsibilities and provide solutions to problems that may come up. It’s not perfect, but it can help minority shareholders in a close corporation. This article focuses on a court case in Massachusetts that established a fiduciary duty for all shareholders, and how it has influenced similar cases in Florida. It explains that in order to bring a lawsuit for breach of fiduciary duty, it must be shown that one party abused their influence to harm another party. The article also discusses how closely held corporations, which have no public market for their shares, can lead to conflicts between majority and minority shareholders. It mentions specific court cases and legal principles to illustrate these points. Overall, the article delves into the complexities of shareholder relationships and legal responsibilities in closely held corporations. Francesca Russo-Di Staulo and Jeff P.H. Cazeau are lawyers in Miami who work at a law firm. They focus on solving legal disputes and have expertise in different areas of law. They are both very well-educated and have a lot of experience. They are also involved in a group that works on international legal issues.

Source: https://www.floridabar.org/the-florida-bar-journal/does-a-florida-minority-shareholder-in-a-closely-held-corporation-owe-a-fiduciary-duty-to-fellow-shareholders/