The Moor You Know Episode 7 | Corporate Shareholder Rights

May 23, 2024 - Blog, Videos by

Understanding Your Rights as a Corporate Shareholder or Member of an LLC

Want to better understand your rights as a corporate shareholder or as a member of an LLC? Robert Powell, Partner in Moorhead Law Group, has a new video that will help explain. In only three minutes, Robert tells how corporations and LLCs are governed and what fiduciary duties are owed to you.

Corporations and limited liability companies, or LLCs, are two types of entities formed by filing Articles of Incorporation or Articles of Organization with the Florida Department of State, Division of Corporation. There are several advantages to a business owner forming a corporation or LLC, including limited liability for the owners, unlimited lifetime, and ease of transfer of ownership of shares in a corporation or membership interests in an LLC.

After forming a corporation or organizing an LLC, the entity can only take action through its agents and employees. In a corporation, the shareholders or owners appoint a board of directors that implements its policies and oversees its management by appointing certain officers such as a president, vice president, treasurer, and secretary to administer the day-to-day operations of the corporation. These officers owe certain duties to the directors of the company including duties of loyalty, care, and good faith. In turn, the directors of the company are accountable to the shareholders and owe them these same duties. These fiduciary duties generally require the officers and directors to act in the best interest of the corporation when taking any action or making any decision. Since shareholders are usually not involved in the day-to-day operations, these fiduciary duties serve to protect their interests by prohibiting the officers from engaging in any self-dealing or usurping the corporation of any opportunity for their own personal advantage. Likewise, the manager or managing member of an LLC owes these same fiduciary duties to the other LLC members.

If there’s a violation of the fiduciary duties, the shareholders and members may have the right to sue for a breach of fiduciary duty. In some circumstances, the shareholder or member can personally file suit against the offending party. In other instances, the shareholder or member must file a derivative suit, that is, suing in the name of the corporation or LLC. But business is hard and courts do not want to second-guess an officer or agent’s business decision every time a decision doesn’t produce the desired outcome. That’s where the business judgment rule comes in. In the absence of fraud, self-dealing, criminal activity, or betrayal of trust, a court will presume that the party made the decision in good faith. Navigating the business of a corporation or LLC can be difficult for its shareholders or members, so it is important that a trusted advisor counsel you on the implications of a certain decision.