Presented by David G. Budd and Charles C. Whittington, Shareholders, Grant Fridkin Pearson, P.A.
This is Part III of our series. This paper is presented for the Florida corporation clients of GFP in Florida and other parts of the US and in Europe.
The Florida Business Corporation Act, Chapter 607, Florida Statutes (FBCA) was amended by the Florida Legislature in 2019 (Ch. 2019-90 Laws of Florida) and became effective January 1, 2020. The FBCA is based on the Model Business Corporation Act of the American Bar Association, as last revised in 2016 (MBCA). As a result of this legislation, the FBCA was entirely updated and modernized.
In Part I, we reviewed the basics of the formation of a Florida business corporation. In Part II, we reviewed mergers and alternatives, indemnification of directors and officers, and authority of a foreign corporation to do business in Florida. In Part III, we will review basic matters pertaining to the conduct of the shareholders, directors, and officers in the operation of the corporation.
Our focus is on closely held corporations for profit, as contrasted to publicly traded corporations and nonprofit corporations.
In Part I, we explained that a shareholder may be a natural person or a legal entity, and the shareholders are the owners of the corporation and elect the board of directors.
Shareholders have rights as recognized by the FBCA and other Florida law. For example, the shareholders may seek to control the succession of ownership of the corporation. This can be accomplished by a shareholders’ agreement. The agreement could provide for the right of first refusal to the corporation or other shareholders to purchase the stock proposed for sale by a shareholder, the method of computing the value of the shares and the terms of payment.
If the shareholders’ agreement provides for the right of first refusal, the secretary or attorney for the corporation should place a legend on the stock certificates to give notice of this restriction.
Shareholder Meetings and Voting
The timing, frequency and location of shareholder meetings and voting rights under the FBCA, should be addressed in the bylaws of the corporation.
The shareholders are required to meet at least once a year to elect the directors of the corporation and conduct any other business that may come before the meeting.
Further, under the FBCA, the shareholders have the right to vote on fundamental transactions of the corporation, such as the sale of all, or substantially all, of its assets or a merger of the corporation with another company.
The meeting of the shareholders may be held in or outside of the State of Florida and at a time set forth in the bylaws or selected by the Board. In lieu of a meeting, an action of the shareholders may be accomplished by written consent.
As to voting, we present the general rules (which may be varied by the articles of incorporation or bylaws of the corporation). Each shareholder is entitled to one vote for each share owned by the shareholder. A vote may be taken if a quorum (typically a majority) of the outstanding shares entitled to vote are present. Given a quorum, the vote or action (other than for the election of directors) is approved if it receives the majority of the votes cast. Unless otherwise provided, the directors are elected by a plurality of the votes cast. If there is more than 2 candidates for one director’s seat, the candidate who receives the most votes for that seat has a plurality.
In Part I we pointed out that (i) a director must be a natural person, (ii) the directors are elected by the shareholders, (iii) the directors exercise the powers of the corporation and manage its business, and (iv) the directors elect and supervise the officers of the corporation.
Meetings and Voting
Meetings of the directors may be held in or outside the State of Florida.
An annual meeting of the directors may be held at the same place and immediately after the annual meeting of the shareholders of the corporation.
The meetings of the directors may be held by means of a conference telephone call or similar electronic equipment if all directors participating in the meeting can hear each other.
Generally, the majority of the directors in office shall constitute a quorum for a meeting of the board of directors, and given a quorum, the vote of a majority of the directors present is the act of the board.
In lieu of a meeting, the directors may act by written consent provided all the directors in office sign the consent.
Standards of Conduct
The shareholders own the corporation. It is the directors who manage its business and thus, there are standards of conduct governing the directors.
Under the FBCA, a director’s standard of conduct is good faith; and reasonable belief that the action is in the best interest of the corporation. This is, for example, in contrast to self interest of the director(s).
The directors must discharge their duties with the care and oversight that an ordinary prudent person in a similar position would deem appropriate.
There is also a fiduciary duty of loyalty to avoid conflicts of interest with the corporation, such as taking advantage of a corporate opportunity or engaging in competition with the corporation.
These matters will be clarified or developed further by case law which is beyond the scope of this blog.
The officers of the corporation take care of the day to day business of the corporation and are appointed by the directors. In carrying out their duties, the officers are governed by similar standards of conduct as those for the directors.
The officers are the face of the corporation and thus, care should be taken by the directors in selecting the officers.
The directors and officers are exposed to claims of liability by outside parties. Thus, as explained in Part II of our series, the corporation may indemnify directors and officers against those claims.
The same natural person may be a shareholder, a director, and an officer of the corporation.
All of the above, is our effort to simply provide our readers with a general overview of the subject matter.
If you have any questions about the FBCA or formation of a Florida corporation, please contact David G. Budd and Charles C. Whittington at 239-514-1000.