What to Do When a Shareholder of A Florida Corporation Files for Dissolution

While there can be an unlimited number of shareholders of any given corporation, all shareholders are not going to have the same opinions, thoughts, or feelings on how the corporation should be run. Inevitably, this may lead to shareholder disputes. If a shareholder so strongly disagrees with how the corporation is being run, there are certain instances where the shareholder can ask the court to dissolve a corporation.

Under Florida law, a shareholder can file a lawsuit asking the court to dissolve the corporation if the shareholder can establish any of the following 4 situations:

1. The shareholders are deadlocked in voting and they have failed to elect new directors after certain directors’ terms have expired or would have expired;
2. The corporate assets are being misapplied or wasted, causing material injury to the corporation;
3. The directors or those in control of the corporation are acting, or are reasonably expected to act, in a manner that is illegal or fraudulent; or
4. The directors are deadlocked in the management of the corporation, the shareholders are unable to break the deadlock, and:
   1. irreparable injury to the corporation is threatened or being suffered,
   2. the business of the corporation can generally no longer be conducted to the advantage of the shareholders because of the deadlock, or
   3. both (a) and (b).[1]

Just because a lawsuit seeking dissolution is filed, however, does not mean the corporation does not have other options. In fact, if a shareholder seeks dissolution of a Florida corporation, the corporation can elect to purchase that shareholder’s shares in the corporation in lieu of dissolution.[2] If a corporation makes this election, the corporation and shareholder seeking dissolution have 60 days to reach an agreement on the terms and fair value of the shares to be purchased.

If the parties do not reach an agreement within 60 days after the election, the court shall make the determination of the fair value of the shares to be purchased. In making this determination, the court must consider the fair value of the corporation as of the day before the date on which the lawsuit was filed “or as of such other date as the court deems appropriate under the circumstances.” This determination is typically done at an evidentiary hearing where each side has an opportunity to present expert testimony on what they believe is the fair value of the shares at issue. Because gathering documents and hiring experts to support a fair value opinion can take time, the court can stay the lawsuit seeking dissolution until the fair value determination is made.

Once the court determines the fair value of the shares, the court shall enter an order directing the corporation to purchase the shares at issue. This purchase order will include such terms and conditions that the court deems appropriate. In other words, the court has discretion in determining the terms and conditions of the purchase order, such as allowing installment payments of the purchase price (when equitable) or requiring collateral to assure payment of the purchase price and any additional costs, fees, and expenses that may be awarded.

The additional costs, fees, and expenses that can be awarded above the purchase price, pursuant to the court’s discretion, include:

• Interest at the rate and from the date the court determines to be equitable; however, no interest shall be allowed if the court finds that the refusal of the shareholder to accept an offer of payment was arbitrary or not in good faith.
• Expenses of the shareholder, such as reasonable fees and expenses of counsel and of any experts, if the court finds that the shareholder had probable grounds for dissolution.

While the court has significant discretion in making the fair value determination, this discretion is not without bounds. The purchase order must meet the same thresholds that are in place for shareholder distributions. For instance, a purchase price that would cause the corporation to be unable to pay its debts as they become due in the usual course of business is not allowed.

After the order directing the purchase of the shares has been entered, the court shall dismiss the judicial dissolution lawsuit and the shareholder will no longer have any rights or status as a shareholder of the corporation.

If you are involved in a shareholder dispute in a Florida corporation, call the experienced attorneys at Rabin Kammerer Johnson to help.

[1] See § 607.1430(1)(b), Fla. Stat.

[2] See § 607.1436, Fla. Stat.