Shareholders of publicly traded corporations are generally free to divest their shares at any point. Floridians who own stock in closely held corporations, however, can occasionally feel handcuffed when they are not allowed to sell shares they would otherwise have already dumped. This problem is typically more acute for shareholders who do not own a majority in a closely held corporation.
The reason for minority shareholders to sell their ownership interests often has to do with the general, long-term direction of the company. As long as majority shareholders are united in their shared vision, minority shareholders typically have few options to change the company’s trajectory. As a result, minority shareholders sometimes assert appraisal rights to come away with something.
What Are Appraisal Rights?
Appraisal rights of Florida minority shareholders is a mechanism for these shareholders to obtain fair market value for shares they no longer want. When minority shareholders properly and appropriately assert their appraisal rights, the closely held corporation is required to undergo a valuation. The purpose of this valuation is to ascertain the fair market value of the minority shareholders’ shares. As long as the minority shareholders wish to continue with the transaction, the majority shareholders are usually forced to buy them out.
The corporation usually has “right of first refusal” when minority shareholders assert their appraisal rights. This means that the minority shares must first be offered to the majority shareholders before seeking third-party buyers. Majority shareholders often claim discounts on minority shares because of the lack of voting rights, but minority shareholders can fight back against such claims.
Appraisal Rights Are Not Available In Every Situation
Unfortunately for minority shareholders, specific conditions must exist for their shares to be appraised and sold. Florida law allows appraisal rights to be asserted in the following circumstances:
- A merger or acquisition;
- Liquidation or other disposition of assets;
- Conversion;
- Share sell-off; or
- Amendment to the articles of incorporation.
Appraisal Rights Can Be an Ace Up Your Sleeve
If you’re a minority shareholder of a closely held corporation and are unhappy with recent decisions of the majority shareholders, it’s comforting to know that you have statutory appraisal rights. However, you might be able to use the mere specter of appraisal rights to get the attention of the majority shareholders. Done in the right context, mentioning that you’re thinking of asserting your appraisal rights might convince them to see things your way.
Consult An Attorney Before You Do Anything
Even discussing your appraisal rights as a minority shareholder of a closely held corporation could be seen by some majority shareholders as crossing the Rubicon. Therefore, it’s vital for a knowledgeable Florida business attorney to review your situation and ensure you are within your rights. Bryant Taylor Law focuses on resolving companies’ internal disputes in a legally sound and professional manner. Discuss your legal needs with us today over a Business Strategy Session.
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