Minority Shareholder Oppression in Florida: Legal Insights and Protections
With no market for their shares, and little to no control over the corporate enterprise, minority shareholders in close corporations are often victims of “squeeze-outs,” “freeze-outs,” or “shareholder oppression.” This oppression consists of various means for a controlling shareholder[1] to either compel the minority shareholder to sell their shares at a discount or to extract from the enterprise more than the controlling shareholder’s proportional share of the corporation.
For example, a controlling shareholder may withhold dividends, pay preferential dividends, pay excessive compensation to insiders, terminate the minority shareholder’s position as a director or officer, purchase the controlling shareholder’s shares with company funds, engage in transactions with other controlled entities on terms that are disadvantageous for the corporation, or execute unfair recapitalization plans that dilute the minority shareholder’s interest. In short, any technique that reduces the cash flow of the minority shareholder or increases the cash flow of the controlling shareholder could potentially be oppression.
Due to the plight of the minority shareholder, courts in some states have created a heightened fiduciary duty imposed on controlling shareholders in close corporations.[2] These courts reason that close corporations resemble partnerships in many ways, and, thus, the fiduciary duty that partners owe to one another should apply to those in control of a close corporation.[3] This heightened duty, as Justice Cardozo famously described, is a “duty of the finest loyalty…. Not honesty alone, but the punctilio of an honor the most sensitive.”[4] Some courts and commentators have suggested that Florida law may recognize this heightened partner-like fiduciary duty for controlling shareholders in close corporations,[5] but it likely does not.
Part I of this article seeks to dispel the notion that Florida courts recognize a heightened fiduciary duty for controlling shareholders in close corporations. Part II explains the remedies that are available to minority shareholders in Florida despite there being no heightened duty. These default protections, however, are often insufficient to protect a minority shareholder from shareholder oppression. Part III, therefore, reviews contractual protections minority shareholders can employ to prevent oppression above and beyond those provided by statute.
There is No Heightened Partner-Like Duty Under Florida Law
Although some commentators have opined that Florida law may recognize a heightened partner-like duty for controlling shareholders, it likely does not. The confusion comes from Tillis v. United Parts Inc., 395 So. 2d 618 (Fla. 5th DCA 1981). There, minority shareholders of a corporation sued the controlling shareholders, alleging that they had caused the corporation to buy back some of the controlling shareholders’ stock at an inflated price.[6] After recounting general principles of fiduciary duties, the court noted:
An application of these principles to facts similar to those in this case is illustrated by Donahue v. Rodd Electrotype Company of New England, Inc., 328 N.E.2d 505 (1975). There it was held that the stockholders in a close corporation owed each other the same fiduciary duty as that owed by one partner to another in a partnership and that the action of controlling stockholders in authorizing purchase of stock by the corporation from themselves without granting an equal opportunity to minority stockholders to sell shares for the same price constituted a breach of that fiduciary duty.[7]
The court adopted this “equal opportunity principle” and reversed the trial court’s order dismissing the minority shareholders’ complaint,[8] which led some to comment that the Tillis court may have adopted a heightened fiduciary duty, like that of partners, for controlling shareholders in close corporations.[9] Although the Tillis court adopted the equal opportunity principle, however, it did not expressly adopt a heightened duty for controlling shareholders; it merely noted that the Supreme Judicial Court of Massachusetts did so in Donahue.[10]
There was no need for the Tillis court to adopt a new standard. In Tillis, the controlling shareholders caused the corporation to purchase their own shares at a premium to their market value.[11] In contrast, the controlling shareholders in Donahue purchased their shares at a fair price.[12] Thus, whereas the controlling shareholders’ actions in Donahue may have been protected by the business judgment rule if the court had not adopted a higher standard, the controlling shareholders’ actions in Tillis were a breach of their ordinary fiduciary duties. Indeed, the Tillis court held that the controlling shareholders violated their fiduciary duties as both controlling shareholders and as directors.[13] A heightened fiduciary duty for controlling shareholders was unnecessary for the court’s holding.
The problem with interpreting Tillis as adopting a heightened partner-like standard for controlling shareholders’ fiduciary duties is that the Florida Supreme Court has rejected analogizing corporations to partnerships. In Freedman v. Fox, 67 So. 2d 692, 693 (Fla. 1953), two shareholders sought to dissolve a close corporation on the theory that the corporation was actually a partnership. The Florida Supreme Court rejected their argument, reasoning that “[t]he corporation was chartered by the State, contracted and incurred debts as a corporation and in all respects operated in that capacity.”[14] The court remarked, “[a]pparently it is only when dissension arises that the respondents become dissatisfied with their position as stockholders.”[15]
The same reasoning applies to fiduciary duties. The fact that the shareholders in Freedman were unable to dissolve the corporation under partnership law, despite the corporation’s resemblance to a partnership, suggests that the fiduciary duty imposed on a controlling shareholder in a close corporation is not that of partners, even if the corporation resembles a partnership. The shareholders of a close corporation have chosen the corporate form over a partnership; they are likely limited to corporate remedies.
Indeed, the argument against analogizing close corporations to partnerships has only strengthened since Freedman. In 1986, Judge Frank Easterbrook and Professor Daniel Fischel published an influential law review article discussing this very analogy:
The assumption that participants in closely held corporations want to be governed by partnership law is itself questionable. The participants incorporated for a reason. Perhaps the reason was only limited liability or favorable tax treatment, and in all other respects they wanted to be treated like partners. But this is not the only possibility. Corporate law is different from partnership law in many ways, and the venturers may desire to preserve these differences.[16]
Their analysis has even more force today. Limited liability and favorable tax treatment are no longer reasons to choose the corporate form. In 1995, Florida adopted a new partnership law which provided for limited liability partnerships.[17] In 1998, Florida repealed the imposition of the corporate income tax on LLCs.[18] These actions have further eroded any assumption that shareholders intended to be treated as partners. Since shareholders chose the corporate form over an LLP or LLC, they are likely limited to corporate remedies.
Default Remedies Available to Minority Shareholders
Although Florida does not recognize a heightened duty for controlling shareholders in close corporations, the law provides various default remedies to protect minority shareholders. A minority shareholder may still bring a claim for breach of a controlling shareholder’s nonheightened fiduciary duty, may seek to have its shares appraised by the court and repurchased by the corporation, or may petition for dissolution of the corporation. Each remedy, however, may not be applicable to every situation and, therefore, any one remedy on its own may prove inadequate to protect all interests.
• Action for Breach of Fiduciary Duty — Even though controlling shareholders in Florida are not subject to a heightened fiduciary duty, a minority shareholder may still bring a claim for breach of a controlling shareholder’s nonheightened fiduciary duty. Like in Tillis, a controlling shareholder breaches its fiduciary duty if it causes the corporation to purchase its own shares at an inflated price.[19] Similarly, a controlling shareholder breaches its fiduciary duty if it causes the corporation to pay preferential dividends,[20] or if it ousts a minority shareholder from employment with the corporation and purchases new shares well below their fair value, diluting the minority shareholder’s stake.[21]
On the other hand, Florida courts generally will not step in when the minority shareholder is merely deprived of employment with the corporation.[22] Florida courts also do not find a breach of fiduciary duty when a controlling shareholder sells its stake to a third party for a premium.[23] There are some circumstances in which a controlling shareholder may extract more than its proportional share of the enterprise, but the minority shareholder will be without a remedy for breach of fiduciary duty.
• Right to an Appraisal — Appraisal rights, sometimes referred to as “dissenter’s rights,” give corporate shareholders the ability to receive the appraised value of their shares upon the occurrence of certain events.[24] These events include a merger, share exchange, or an amendment to the articles of incorporation or bylaws.[25]
Upon the occurrence of one of those events, the shareholder must give notice to the corporation.[26] The shareholder and the corporation must then exchange offers.[27] If the parties cannot agree on the fair value, either the corporation or the shareholder can petition the court to determine the fair value.[28]
In the past, some courts have applied a discount to a minority shareholder’s stake for its lack of marketability or minority status,[29] but the Florida Business Corporation Act has since been amended to require that fair value be determined “[w]ithout discounting for lack of marketability or minority status.”[30] Therefore, the “fair value” obtainable through appraisal may be more than the minority shareholder can obtain in a private sale. Nevertheless, an appraisal is only available under limited circumstances, such as a merger, share exchange, or amendment to the corporation’s charter or bylaws.
• Petition for Judicial Dissolution — A minority shareholder may also petition a court for judicial dissolution. Although judicial dissolution is a drastic measure, it may be more favorable to a minority shareholder than oppression. Upon dissolution, the minority shareholder would receive his or her proportional share of the corporation’s net asset value. In addition, the corporation or the other shareholders may elect to purchase the minority shareholder’s stake at fair value,[31] the court can order that the corporation purchase the minority shareholder’s stake at fair value,[32] or the court can appoint a receiver or custodian.[33]
However, judicial dissolution is only available under narrow circumstances.[34] Unless there is deadlock,[35] judicial dissolution is only permissible when the corporate assets are being misapplied or wasted, a high hurdle. Corporate assets are only “misapplied or wasted” if “the exchange was ‘so one sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration.’”[36] Essentially, this only occurs “in the rare, ‘unconscionable case where directors irrationally squander or give away corporate assets.’”[37]
For example, in In re Walt Disney Co. Derivative Litigation, 906 A.2d 27, 74 (Del. 2006), the court found that Disney did not waste its corporate assets by paying its CEO a severance of $130 million, roughly $40 million in cash and $90 million in stock options, after only 15 months on the job.[38] The severance was not waste because its purpose was to incentivize the CEO to leave $200 million of commissions at his prior job.[39]
On the other hand, in Cox Enterprises, Inc. v. News-Journal Corp., 469 F. Supp. 2d 1094, 1110-11 (M.D. Fla. 2006), aff’d, 510 F.3d 1350 (11th Cir. 2007), the court found that the defendant wasted its corporate assets by donating over $1 million per year to local cultural institutions. The defendant made the donations despite its own counsel’s opinion that the donations could not be justified as promotional expenses or corporate philanthropy.[40]
In other words, to show waste, there must be no legitimate justification for the expenditure. The courts will not save a minority shareholder because a controlling shareholder or director made a decision that did not work out. “This onerous standard for waste is a corollary of the proposition that where business judgment presumptions are applicable, the board’s decision will be upheld unless it cannot be ‘attributed to any rational business purpose.’”[41]
Contractual Protections Minority Shareholders Can Employ
Given that Florida law does not recognize a heightened duty for controlling shareholders in close corporations and that the available default remedies are limited, minority shareholders should seek additional protections in shareholder agreements or the corporation’s charter to prevent shareholder oppression. These provisions may include preemptive rights, mandatory dividends, buyout provisions, employment assurances, restrictions on the transfer of stock, or provisions that ensure the minority shareholder is able to participate materially in the management of the enterprise.
• Preemptive Rights — Preemptive rights permit their holder to purchase a portion of any new stock issue, up to his or her pre-issue proportional share of ownership, thus, preserving the holder’s proportional stake in the enterprise. A minority shareholder who bargains for preemptive rights has a measure of control over decisions that would dilute his or her interest or at least could prevent his or her interest from being diluted.
Although preemptive rights offer some protection, they will not prevent oppression alone. For example, in Biltmore Motor Corp. v. Roque, 291 So. 2d 114, 115 (Fla. 3d DCA 1974), the plaintiff had preemptive rights protecting his 40% stake in a close corporation. The defendants, one with a 40% stake and the other with a 20% stake, forced the plaintiff to resign his position as an officer and director.[42] The defendants then purchased a new issuance of 715 shares at $100 per share, even though the stock had an estimated fair value of $6,900 per share.[43]
The Biltmore Motor Corp. defendants offered the plaintiff the opportunity to purchase his prorated share of the stock.[44] However, the defendants’ offer was “an empty gesture, since the individual defendants knew that the plaintiff, having been ousted from the corporate family, would not invest any more money in the company.”[45] The court found that the defendants had breached their fiduciary duties and, therefore, invalidated the new stock issuance.
Although the court granted the plaintiff relief, it is unclear whether the plaintiff would have prevailed if the new stock were issued at close to the fair market value. The case, therefore, shows that preemptive rights alone are insufficient to prevent being squeezed out of a close corporation.
• Mandatory Dividends — Requiring dividends upon certain events, such as when the corporation reaches certain cash levels, can protect against the corporation retaining earnings, not paying dividends, and paying generous salaries to the controlling shareholders. A shareholder agreement can govern “the authorization or making of distributions.”[46]
• Buyout Provisions — A buyout provision — a provision that requires the corporation or other shareholders to buy the minority shareholder’s stock — can effectively protect against oppression because it addresses the heart of the minority shareholder’s plight, the lack of a liquid market for its shares. A buyout provision should include the trigger, the method of valuation, and whether the corporation or the other shareholders are purchasing the shares.
• Employment Assurances — Obtaining employment assurances is especially important for a minority shareholder in Florida. Florida courts generally will not protect the employment interest of a minority shareholder in a close corporation.[47] Minority shareholders should, therefore, seek agreements regarding the existence, capacity, compensation, and duration of their employment.
• Restrictions on Transfer of Stock — A carefully crafted transfer restriction can protect a minority shareholder by preventing other shareholders from selling to third parties that may be hostile or that may have a different vision for the business. However, the minority shareholder must ensure that the transfer restriction is valid and binding against third-party purchasers.
Transfer restrictions generally take one of four forms. The first form is a requirement that the selling shareholder first offer the corporation, or other persons, an option to purchase the shares.[48] The second form is a requirement that the corporation, or other persons, purchase the shares.[49] The third form is a requirement that the corporation, or other persons, approve the transaction.[50] The fourth form is a general prohibition from selling or transferring shares to a designated person or class of person.[51]
If the transfer restriction takes either the first or second form — a right of first refusal or a mandatory sale to a designated person — the restriction must be reasonable.[52] If the transfer restriction takes either the third or fourth form — requiring approval of the sale or prohibiting sale to a designated person or class of person — the restriction need only be “not manifestly unreasonable.”[53]
In addition, if the shares are certificated, the transfer restriction must be noted conspicuously on the stock certificates.[54] If the shares are not certificated, the transfer restriction must be contained in the information statement required by F.S. §607.0626(2).[55] Unless so noted, the restriction will be unenforceable against a purchaser without knowledge of the restriction.[56]
• Management Assurances — Contractual provisions in the corporation’s articles of incorporation[57] or in shareholder agreements[58] that protect the minority shareholder’s ability to participate materially in the management of the business can be powerful protections. Such provisions may include a high quorum requirement, supermajority requirements on certain board actions in a shareholder agreement, a vote pooling agreement or a voting trust, cumulative voting, or the creation of separate classes of shares that are guaranteed a particular number of seats on the board of directors.
Conclusion
In conclusion, although some commentators have suggested that Florida law may recognize a heightened partner-like duty for controlling shareholders, it likely does not. While Florida law does provide certain limited protections by default, they are often insufficient to protect a minority shareholder from shareholder oppression. Minority shareholders should, therefore, seek additional protections in shareholder agreements and the corporation’s charter to prevent shareholder oppression.
[1] This article uses the term “controlling shareholder” instead of “majority shareholder” because the term is more precise. A shareholder that has effective control over an enterprise has a fiduciary duty whether or not the shareholder has more than 50% ownership of the corporation.
[2] See Donahue v. Rodd Electrotype Co. of New England, 328 N.E.2d 505, 515-16 (Mass. 1975) (establishing a heightened duty); Crosby v. Beam, 548 N.E.2d 217, 220 (Ohio 1989) (same). But see Nixon v. Blackwell, 626 A.2d 1366, 1379-81 (Del. 1993) (declining to “fashion a special judicially-created rule for minority investors” in closely-held corporations); Merner v. Merner, 129 F. App’x 342, 343 (9th Cir. 2005) (rejecting the “heightened duty” adopted in Donahue).
[3] See, e.g., Donahue, 328 N.E.2d at 512-15.
[4] Meinhard v. Salmon, 164 N.E. 545, 546 (1928).
[5] See, e.g., Crosby, 548 N.E.2d at 220 n.3 (citing Tillis v. United Parts, Inc., 395 So. 2d 618 (Fla. 5th DCA 1981)); Francesca Russo-Di Staulo & Jeff Cazeau, Does a Florida Minority Shareholder in a Closely Held Corporation Owe a Fiduciary Duty to Fellow Shareholders? 79 Fla. B. J. 55, 58 (Oct. 2005).
[6] Tillis, 395 So. 2d at 618.
[7] Id. at 619.
[8] Id. at 619-20.
[9] See Staulo & Cazeau, et al., Does a Florida Minority Shareholder at 5.
[10] Tillis, 395 So. 2d at 619.
[11] Id. at 618.
[12] Donahue v. Rodd Electrotype Co. of New England, 307 N.E.2d 8, 9 (Mass. App. Ct. 1974) (finding that the shares were purchased for less than their liquidating value or book value), rev’d on other grounds, 328 N.E.2d 505 (Mass. 1975).
[13] Tillis, 395 So. 2d at 619.
[14] Freedman, 67 So. 2d at 692.
[15] Id.
[16] Frank H. Easterbrook & Daniel R. Fischel, Close Corporations and Agency Costs, 38 Stan. L. Rev. 271, 295 (1986).
[17] Ch. 95-242, §§1-3, Laws of Fla.
[18] Ch. 98-101, §7, Laws of Fla.
[19] See Tillis, 395 So. 2d at 619.
[20] Alliegro v. Pan Am. Bank of Miami, 136 So. 2d 656, 658-62 (Fla. 3d DCA 1962).
[21] Biltmore Motor Corp. v. Roque, 291 So. 2d 114, 115-16 (Fla. 3d DCA 1974).
[22] See Orlinsky v. Patraka, 971 So. 2d 796, 802 (Fla. 3d DCA 2007); Mendez-Arriola v. White Wilson Med. Ctr. PA, No. 3:09-cv-00495-MCR-EMT, 2011 WL 3269451, at *6 (N.D. Fla. July 29, 2011).
[23] Martin v. Marlin, 529 So. 2d 1174, 1176-79 (Fla. 3d DCA 1988).
[24] Fla. Stat. §607.1302 (2025).
[25] Id.
[26] Id. at §607.1321.
[27] Id. at §§607.1322-.1326.
[28] Id. at §607.1330.
[29] See, e.g., Munshower v. Kolbenheyer, 732 So. 2d 385, 386 (Fla. 3d DCA 1999).
[30] Fla. Stat. §607.1301(5)(c) (2025).
[31] Id. at §607.1436(1).
[32] Id. at §607.1436(3)-(5).
[33] Id. at §607.1432.
[34] See, e.g., Graham v. Uphold, 245 So. 3d 964, 968 (Fla. 1st DCA 2018).
[35] See Fla. Stat. §607.1430(1)(b) (2025).
[36] In re Walt Disney Co. Derivative Litig., 906 A.2d 27, 74 (Del. 2006).
[37] Id.
[38] Id. at 57.
[39] Id. at 74.
[40] Cox Enterprises, Inc., 469 F. Supp. 2d at 1094.
[41] In re Walt Disney Co., 906 A.2d at 74.
[42] Biltmore Motor Corp., 291 So. 2d at 114.
[43] Id.
[44] Id.
[45] Id.
[46] Fla. Stat. §607.0732(1)(b) (2025).
[47] See Orlinsky, 971 So. 2d at 802; Mendez-Arriola, 2011 WL 3269451 at *6.
[48] Fla. Stat. §607.0627(4)(a) (2025).
[49] Id. at §607.0627(4)(b).
[50] Id. at §607.0627(4)(c).
[51] Id. at §607.0627(4)(d).
[52] Id. at §607.0627(3)(c).
[53] Id. at §607.0627(4)(c)-(d).
[54] Id. at §607.0627(2).
[55] Id.
[56] Id. at §607.0627(2) (“Unless so noted [on the stock certificate or §607.0626(2) information statement], a restriction is not enforceable against a person without knowledge of the restriction.”). The statute, however, does not mandate a result when the transfer restriction is not on the stock certificate or the information statement, but the third-party purchaser takes with actual notice of the transfer restriction. The better view is that a purchaser with notice is bound by the transfer restriction. See F.B.I. Farms, Inc. v. Moore, 798 N.E.2d 440, 446 (Ind. 2003) (enforcing transfer restriction against purchaser with actual notice of transfer restriction even though the restriction was not noted on stock certificate or included in information statement); see also Henry v. Phixios Holdings, Inc., C.A. No. 12504-VCMR, 2017 WL 2928034, at *8 (Del. Ch. July 10, 2017) (finding that, under the DGCL, a transfer restriction binds a subsequent purchaser who takes with actual notice). Nevertheless, this risk can be eliminated by ensuring that the transfer restriction is noted conspicuously on the stock certificates or the information statement.
[57] See, e.g., Fla. Stat. §607.0728 (2025) (“Shareholders do not have a right to cumulate their votes for directors unless the articles of incorporation so provide.”); Fla. Stat. §607.0725(1) (2025) (“Unless the articles of incorporation or this chapter provides otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter.”).
[58] See, e.g., Fla. Stat. at §607.0732(1)(a).
Pierce Schultz is an attorney at Pierce Schultz PLLC, where he represents clients across South Florida. He focuses his practice on business and real estate disputes.
This column is submitted on behalf of the Business Law Section, Manny Farach, chair, and Daniel Etlinger and Kathleen L. DiSanto, editors.
