This is part two of the significantly re-vamped version of the Florida Business Corporation Act (the “FBCA”), which went into effect on January 1, 2020. This article highlights some of the changes to the previous FBCA that Florida corporations may encounter if they find themselves party to a lawsuit. The first article addressed some of the impact of the changes on filings and the final part of this three-part series will address the revised FBCA’s changes to mergers, share exchanges, and other transactions.
1. Although not a change, it is important to note that a shareholder cannot bring a derivative lawsuit against a Florida corporation unless that shareholder was a shareholder of the
company at the time of commencement of the derivative lawsuit. The shareholder also must have been a shareholder of the company at the time that the infringing conduct took place or
must have obtained the shares from someone who was a shareholder at the time that the infringing conduct took place.
2. Prior to the filing of a derivative lawsuit, the complaining shareholder must make a demand on the board of directors at least 90 days before filing the derivative complaint against
the corporation. If such demand is not made, in order for the derivative complaint to survive dismissal, the shareholder must be able to provide the reasons for not making the demand
on the board of directors.
3. If the board of directors makes an inquiry into the allegations made in the demand or the derivative lawsuit complaint, the court may stay the lawsuit.
4. A court may dismiss a derivative lawsuit if the court determines that the derivative lawsuit is against the best interests of the corporation. In making this determination, the court
may, but is not required to, take into account the recommendation of a special litigation committee of the corporation.
5. If a derivative lawsuit is brought against a foreign corporation, the lawsuit is governed by the laws of the jurisdiction of incorporation of the foreign corporation except for such
procedures relating to staying the lawsuit, settlement, and issues relating to the proceeds and expenses of the lawsuit.
6. The new FBCA defines a “direct” action. A direct action is one where there is (a) an actual or threatened injury that is not solely the result of an injury suffered or threatened to be
suffered by the corporation, or (b) an actual or threatened injury resulting from a violation of a separate statutory or contractual duty owed to the shareholder, even if the
corporation suffers the same injury. It is important to note that the test for what is considered a direct action as opposed to a derivative action is new under the recently enacted
version of the FBCA.
7. The FBCA provides a statutory basis for the appointment of a receiver or a custodian. Such receiver or custodian may be appointed, among other things, when there is deadlock of the
board of directors or there is irreparable injury to the corporation due to fraudulent acts by directors of the corporation.
8. The appointment of a receiver or custodian is in addition to other remedies available to shareholders under Chapter 607 or otherwise available under law or equity.
9. The FBCA allows for the appointment of a provisional director when the directors are deadlocked with regard to management of corporate affairs and the shareholders are unable to break
10. The FBCA permits a court to remove a director through a derivative proceeding if the court finds that (a) the director engaged in fraudulent conduct, grossly abused his position, or
intentionally inflicted harm on the corporation, and (b) that removal is the best option and is in the best interest of the corporation.
11. The FBCA codifies the standard of care that must be exercised by directors in their capacity as board members or as members of board committees. The board of directors must exercise a
standard of care that “a person in a like position would reasonably believe appropriate under similar circumstances.”
12. A conflict of interest transaction must be fair to the corporation. Under the recently enacted version of the FBCA, an unfair conflict of interest transaction cannot be cleansed by a
disinterested board or disinterested shareholder approval.
13. The FBCA adds a two-year statute of limitations for actions based on violations of the statute addressing directors’ liability for unlawful distributions.
14. The FBCA adds a one-year statute of limitations after the liability of the claimant has been finally adjudicated for actions seeking contribution or recoupment.
15. The FBCA codifies the statutory requirement that officers shall act in good faith and in a manner that the officer reasonably believes is in the best interest of the corporation when
performing his functions. The FBCA also sets forth those officers and professionals that an officer can rely on in making decisions. Such reliance must be reasonable.
16. The FBCA requires that an officer must report “up the ladder.” Failure to do so may give rise to liability to the corporation and its shareholders.
17. The recently enacted version of the FBCA significantly modifies statutory indemnification of officers or directors. A corporation is only required by statute to indemnify an officer or
director if the officer or director is “wholly successful” on the merits. Such mandatory indemnification can by expanded through the corporation’s documents.
The above list contains only a few of the changes to the FBCA that litigants may encounter. If you believe that your company may be impacted, please contact Rodriguez-Albizu Law, P.A. to discuss how the changes to the FBCA can impact your company.