Shareholder derivative
claims in Florida.

The call usually starts the same way. “My partner is running personal expenses through the company,” or “the majority owner set up a second entity and moved our best customers into it,” or “he is paying himself a salary the operating agreement does not authorize.”

The instinct is to sue that person. The complication is that in each of those examples the party actually injured is the company, and the company is controlled by the person who did it. Derivative procedure is the answer the law developed to that circularity, and it comes with gates you have to pass through in order.

Direct or derivative, and why it decides the case

This is the first question and it disposes of more of these disputes than any argument about the underlying misconduct. Ask who was injured. If the company’s assets were depleted, its opportunities taken, or its funds misapplied, the injury is the company’s and the claim is derivative even though you feel it personally through your ownership. If you were denied distributions others received, refused access to books and records, diluted by a transaction aimed at you, or a shareholders’ agreement running to you personally was breached, the claim is direct.

In closely held Florida companies the same course of conduct frequently produces both, and the pleading has to keep them separate. A complaint that pleads a derivative injury as a direct claim invites an early dismissal that costs months.

The demand requirement

Before filing derivatively you generally must make a written demand on the corporation asking it to take suitable action, and then wait roughly 90 days. The narrow exceptions are a demand that has already been rejected, or a showing that waiting would cause irreparable injury to the company.

Two practical points. First, the demand letter is a real piece of advocacy, not a formality; it frames the dispute and it is going to be read by a judge later. Second, if assets are actively being moved, waiting 90 days may be untenable, and the answer is usually to pair the derivative claim with an application for emergency injunctive relief or the appointment of a receiver rather than to skip the demand and hope.

Standing, and keeping it

You generally must have owned an interest at the time of the conduct complained of, and you must keep that interest through the case, and you must be able to fairly and adequately represent the company’s interests. That last requirement is where defendants attack a plaintiff who has their own competing business or a personal agenda unrelated to the company’s welfare.

The continuing-ownership rule has a trap. An owner who accepts a buyout, or whose interest is redeemed or extinguished while the case is pending, can lose standing to continue. That interacts badly with settlement discussions and needs to be thought through before you agree to anything about your shares.

What the company will do about it

Expect the corporation to respond to the demand by appointing directors said to be independent, or a special committee, to investigate and then conclude that litigation is not in the company’s best interest. A court may defer to that conclusion where the process was genuinely independent and made in good faith after reasonable inquiry.

In a company with three owners and a board consisting of the two who are accused, that independence is often more theory than fact, and demonstrating so becomes the real battleground. Documenting who controls whom, who is paid by whom, and how the investigation was actually conducted is the work that wins that fight.

The economics, which are two-sided

You fund the case, and the company receives the recovery. Florida allows a court to award a successful derivative plaintiff reasonable attorney’s fees from the recovery where the action produced a substantial benefit, which is what makes these viable at all. On the other side, a derivative action commenced without reasonable cause can expose the plaintiff to the defendants’ fees.

That asymmetry is why we assess these hard before filing. We look at the strength of the fiduciary-duty evidence, whether the defendants can satisfy a judgment, whether the company is even worth restoring, and whether a buyout would get you a better outcome faster. Sometimes the answer is that the right instrument is not a derivative suit but a dissolution or buyout claim, which we handle on partnership and shareholder disputes.