Shareholders May Open the Corporate Books
When you own stock in a corporation, you’re doing much more than investing your time or money in that business. While investment purposes such as financial security or the generation of passive income may be the predominate reasons you choose to own stock, a corporate shareholder actually receives much more in return. In particular, the State of Florida has decided that in consideration for their investment into a corporation, a stockholder should be entitled to inspect and copy certain business records of the corporation.
The records available for inspection can reveal important information about a corporation, including its structure and governance, what decisions were made on behalf of the corporation and who approved or opposed those decisions, and even its financial condition. By making the records generally available to shareholders, the State of Florida is making an effort to promote the distribution of important managerial or financial information and prevent fraud or mismanagement by those in control.
Many shareholders are unaware of this vital tool, and miss out on the opportunity to protect their interests in the corporation. Without such protection from the law in the State of Florida, a corporation could routinely engage in improper business or interested transactions with complete disregard for the well-being of the corporation and the corporation’s shareholders. In doing so, the conduct and activity of the business could be to the sole benefit of individual directors or officers of the corporation, and to the detriment of its shareholders and the shareholders’ investment in the corporation. For those reasons, shareholders should be aware of the basic rights established by the laws of the State of Florida that they are entitled to enforce to their benefit.
The Shareholder’s Absolute Right
Florida law provides shareholders the absolute rightto inspect and copy the following corporate records:
governing documents of the corporation, including the Articles of Incorporation1, the Bylaws2, and resolutions that create one or more classes/series of shares and fix their relative rights, preferences, and limitations3;
minutes of all shareholders’ meetings, and records of all action taken by shareholders without a meeting, for the past three (3) years4;
written communications to all shareholders generally, or all shareholders of a selected class/series of stock, for the past three (3) years5;
financial statements of the corporation for the past three (3) years, which should include the corporation’s balance sheet as of the end of the fiscal year, an income statement for that year, and a statement of cash flows for that year6;
a list of the names and business addresses of the current directors and officers of the corporation7; and
the most recent annual report for the corporation that was delivered to the Department of State, Division of Corporations8.
In order to exercise your absolute right as a shareholder to inspect and copy corporate records, Florida Statute §607.1602 requires that the shareholder provide written notice to the corporation of the shareholder’s demand to inspect and copy certain corporate records. This written notice of demand must be provided to the corporation at least five (5) business days before the date on which the shareholder wishes to inspect and copy the corporate records9.
The Shareholder’s Qualified Right
The right of shareholders to inspect corporate records does not end with the absolute right. However, to be entitled to inspect and copy items beyond the list of records above, the shareholder must possess aqualified rightto make a more extensive demand.
Specifically, the State of Florida requires that (i) the shareholder’s written notice of demand is made in good faith and for a proper purpose; (ii) the shareholder describes with reasonable particularity the purpose for the written notice of demand, and the records the shareholder wishes to inspect; and (iii) the records requested are directly connected with the shareholder’s stated purpose10.
For purposes of determining what a ‘proper purpose’ is under Florida Statute §607.1602, the purpose must be “reasonably related” to the individual’s interest as a shareholder of the corporation11. As the Supreme Court of Florida has stated, this right to inspect and copy corporate records will not be extended to allow a “fishing expedition” or to simply “satisfy idle curiosity” of a shareholder. News-Journal Corp. v. State ex rel. Gore, 187 So. 271, 272 (Fla. 1939).
If a shareholder satisfies the qualified conditions, then in addition to the records identified above, the shareholder is entitled to inspect and copy the following:
excerpts from minutes of any meeting of the board of directors12;
record of any action taken on behalf of the corporation by a committee of the board of directors13;
record of any action taken by the shareholders or board of directors without a meeting15;
Recourse for Improper Denial of Qualified Demand
A corporation may deny a shareholder’s qualified demand if the demand is made for an improper purpose. Further, a corporation may deny a shareholder’s qualified demand if the demanding shareholder (i) sold (or offered for sale) any list of shareholders of the corporation or any other corporation; (ii) has assisted any person in procuring such a list; (iii) or has improperly used any information inspected or copied pursuant to the rights granted under Florida Statute 607.1602, at any time within two (2) years prior to the written notice of demand. In fact, a shareholder who for an improper purpose sells or otherwise distributes any record inspected or copied under the rights established by Florida Statute 607.1602 is subject to a civil penalty of up to $5,000.00. These penalties are incorporated into the law to prevent shareholders from abusing their inspection privileges or using those privileges for improper purposes.
In the event a corporation fails to respond, or wrongfully denies any such request, the requesting shareholder may enforce his rights via judicial intervention and is entitled to recover any costs, including attorney fees, in doing so19.
If you are a shareholder and wish to make written notice of demand to inspect and copy records of a corporation in the State of Florida, you should seek the advice of competent and qualified legal counsel.
The hiring of an attorney is an important decision that should not be based solely on advertisements. All information on this website is provided for informational and educational purposes only, and should not be interpreted as legal advice.
9It is important to note that Florida Statute 607.1602(4) requires that a shareholder give at least fifteen (15) days written notice if the shareholder is requesting to inspect and copy (i) the corporation’s Bylaws; or (ii) the list of the names and business street addresses of the corporation’s current directors and officers.
A FEW THINGS YOU NEED TO KNOW ABOUT PROBATE
Probate. A single word that can make multitudes cringe as if hearing nails on a chalkboard. It’s the Downtown Orlando I-4 Corridor of legal proceedings. It’s the one thing people universally want to avoid. But, why? Is probate really all that bad? When you only deal with one or two probate proceedings in your lifetime, like most people, they seem like terrible things that consume all of your time and money. An attorney that handles probate proceedings on a regular basis realizes that they aren’t as terrible as everyone makes them seem. To you they may seem daunting, but they don’t have to be, there is help.
What does Florida Law say?
As Florida residents, we get a few extra perks that residents of other states may not receive. Not only do we live in the gorgeous Sunshine State, but we have access to a court system that has developed rules and laws to streamline the probate process. What do laws have to do with probate? In Florida, we have many retirees (I know, say it isn’t so!), as well as Florida natives (a rare breed). Snow birds that decide to move to Florida after hitting that wonderful age where they no longer have to work every day and they are sick of shoveling the white stuff that magically falls from the sky (Snow. I am talking about snow!), tend to stay until such time as they are no longer with us on this earth. As a result, our court system has a steady flow of probate proceedings and Florida had to develop some ways to make the process run smoothly or nothing would get accomplished. Some Florida counties have one judge that handles all of the probate proceedings, and some counties have a few judges that handle them. There is a set procedure and timeline on how and when things happen in probate. Sometimes a little more time is necessary, but overall the timeline keeps the probate proceeding from hitting every pothole along the way. One of the biggest things Florida has done to streamline the probate process is make it mandatory in almost all probate proceedings for the personal representative to be represented by an attorney. There are a few exceptions, but in most situations the personal representative will need to hire a licensed Florida attorney to guide them through the probate process, like an Orlando native driving along the Downtown Orlando I-4 Corridor in rush hour traffic. This is especially helpful when all of the relatives are outside of Florida and they really don’t know where to start after their loved one passes.
I once informed an out-of-state attorney of the necessity of having a licensed Florida attorney representing the personal representative, to which they responded, “Florida attorneys must have some great lobbyist.” I’m sure that is what most people think when they hear about this regulation. The truth is, this isn’t so much for the attorneys as it is for the efficiency of our court system and the individuals who have just suffered a loss. Do you really want to handle the logistics and formalities of probate right after the loss of your husband, wife, mom, dad, son, daughter, brother, sister, etc.? When people have suffered a loss, most of the time they need the comfort that someone is helping them through such a rough time and handling the “minor” details. How often have you heard “I will empty [insert loved one’s name]’s closet next week,” then next week turns into next month and next month turns into next year. If this delay (completely understandable as it may be) was allowed in the court system, then probate would never close, houses would deteriorate, banks would have accounts with no owners, and children could be left with no legal guardians. Having an attorney involved in the probate process cannot make the personal representative see the attorney any sooner to begin the probate proceedings, but it can make the proceedings move along as quickly as they should once the probate has started.
Speaking of delays in starting, money seems to be one of the most common reasons why meeting with an attorney is put off for a later date. Everyone’s favorite question, “how much is this going to cost me?” followed up with the statement that: “They didn’t have very much.” If the personal representative is required to hire an attorney, why do they have to pay them? Why can’t the attorney be free? It seems like the attorneys have some of their friends writing the laws in Tallahassee. Well, just like everyone else, attorneys have lights to keep on, student loans to pay, mortgages to pay, and families to feed; they can’t do everything for free. Those “friends” in Tallahassee thought about the money when they made it a requirement to have an attorney and they laid out the reasonable attorneys fees in Florida Statute 733.6171. Not every probate is going to be the same. Some are short, while some can take a decent amount of time. Some are straight forward and some have unknown daughter Suzy coming out of nowhere to cause problems and delay.
So how are the fees calculated? The Statute breaks down reasonable attorney fees by the compensable value of the estate plus any extraordinary services. How do I know what is extraordinary? Think of the one individual that might cause issues in your estate. The issues you just thought that individual could cause are probably extraordinary. Unknown daughter Suzy, what she does to the estate is extraordinary. For a more comprehensive list of extraordinary services, just look at Florida Statute 733.6171 (4).
Finally, another commonly asked question regarding attorney’s fees is, “If I pay the attorney up front, will I get my money back?” YES, provided the money is in the estate to pay the personal representative back. Florida has categorized creditors into priority of reimbursement. Personal representatives and attorneys are the first to get paid out of the estate. Which means: if a personal representative fronts money for attorney’s fees, they will be reimbursed up to the amount in the estate. A licensed Florida attorney should be able to tell the personal representative if it’s worth their money and time to open probate proceedings.
The biggest issue in probate isn’t with money, time, or formalities, it is emotions. Long story short, individuals are dealing with a loss, which means emotions are going to run wild. Everyone knows that there are the 5 stages of grief: denial, anger, bargaining, depression, and finally, acceptance. Imagine having to navigate the probate process while going through the grieving process. “I’m sorry your Honor, I can’t get you an inventory because it feels wrong going through her belongings.” Everyone has been there and no one can blame you when you are grieving. Losing someone is hard, which brings up the question: do you really want to go through probate alone? Admittedly, some people cope with grief by getting down to business, but inevitably those individuals will cause fights if someone else copes differently. Navigating the probate process can be a tricky task for anyone, and letting an experienced probate attorney assist the personal representative in navigating the probate process can help avoid some of the pitfalls and take some of the blame off the personal representative that can be caused by emotions.
If you have been named a personal representative, or even if you are a beneficiary, and you have questions about the probate process, call a licensed Florida attorney. If you have questions about what being a personal representative entails, call a licensed Florida attorney. If you have recently suffered a loss, a licensed Florida attorney can help guide you through this difficult time.
The hiring of an attorney is an important decision that should not be based solely on advertisements. All information on this website is provided for informational and educational purposes only, and should not be interpreted as legal advice.
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Halifax Law Group was recently recognized in the November 2017 issue of the Volusia/Flagler Business Report as one of the area’s largest law firms. Click here then select the Oct 31st, 2017 issue, to view the entire article including comments from Ms. Schonsheck, discussing the impact of the improving economy and technology on the issues local law firms are currently facing.
Managing Attorney Bethany L. Schonsheck was recently honored as one of Daytona Beach News-Journal’s Influential Women in Business. The honorees, which were selected from nominations submitted by readers and staff, were featured in the Volusia/Flagler Business Report’s “Influential Women in Business” edition published in October, 2017. The 12th annual edition included the profiles of Ms. Schonsheck, as well as the other honorees. Click here to view the entire article, then select the Sep 28th, 2017 issue.
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