By Deborah Hogan
The Florida Business Corporation Act sets the rules for corporations formed in the state of Florida.
Owners and directors of Florida corporations should be aware of amendments to the Florida Business Corporation Act (codified at Florida Statutes, Chapter 607). The revisions to the law go into effect on January 01, 2020.
While the amendments represent a comprehensive modification, the bulk of the amendments are either clarifying or designed to mirror provisions that already exist in the Florida Limited Liability Act. Other changes are procedural in nature such as to update the statute to fit in with the times such as those addressing the use of electronic notices.
For an example of a clarifying change, it has been widely known that a corporation that is not compliant with the Secretary of State filing rules cannot prosecute litigation, but can defend lawsuits. The new statute was re-written to make this implicit rule clear and consistent with what is believed to be the current state of the law.
During the course of amending Florida’s law, extensive input was obtained from the Florida Department of State, Division of Corporations (the “Department”). One of the more exciting changes involving the Department includes the return to a policy of allowing prospective company owners to reserve a company name with the Department of State. (reinstating an old procedure that was abandoned years ago). Another helpful change allows a corporation to correct a mis-filed document at any time (changed from a 30 day window).
One of the more important changes is that the Act broaden the appraisal rights of minority shareholders (i.e., shareholders owning less than a majority, or without control, of the corporation), including the clarification that determining the fair value of a minority interest should not apply a discount for the share’s lack of marketability or minority status.
Another momentous change expands the judiciary’s options for remedies when directors are deadlocked. Judicial dissolution is not the only solution. Remedies available under the revised Act include allowing the appointment of a provisional director, a receiver or a custodian.
There is also a set of changes that affect how shareholders and directors operate. Most if not all business owners will want to have their bylaws reviewed and updated with any applicable changes to their Bylaws as a result of the law change. The new Act:
- allows Shareholder Agreement to apply to all corporations not only those with 100 or fewer shareholders
- prevents shareholder agreements from shifting fees and expenses to a few certain shareholders unless unanimously agreed to.
- clarifies that fiduciary standards that apply to Board members, equally apply to members of a committee of the Board.
- Revises the indemnification language to reserve certain mandatory indemnifications of officers and directors but leaves out an indemnification of employees because indemnification of employees is already set out in the laws of agency contained elsewhere in the Florida statutes. This change paved the way for the language in the Corporation Act which allows any legally permissible indemnification to be added to a corporation’s articles of incorporation, or its bylaws. The Act further clarified that in order to benefit from mandatory statutory indemnifications the officer/director must be ‘wholly successful’.
- In an effort to bring greater consistency with positions taken in courts in Florida, the new Act provides a clarification of the distinction between derivative actions and direct actions.