Things You Didn’t Know About Shareholders and Corporate Shares

If you have a small business, you may have shareholders. Yet, you may not even give thought to the legalities of shareholders or the ways that shareholders can impact your business. Here are some little known things about shareholders that every business owner should know.

You Pick the Classes

There are different classes of shareholders, based upon the rights that they have. But Florida law allows you to customize the differences between them and create as many classes of shareholders as you like.

You can have shareholders that get dividends but do not vote. You can have shareholders that get paid before other ones do. You can have shareholders that have the option to sell their shares back to the corporation at a later date at a set price.

So long as your shareholder agreements disclose the terms of the class of share that the investor is purchasing, and your articles of incorporation provide details, you can be as creative as you’d like.

There are Different Ways for Shareholders to Vote

There are two ways to calculate shareholder votes when it comes to elections of board members: What is known as cumulative and statutory voting.

Cumulative voting must be specifically authorized in the articles or bylaws. This allows a shareholder to cast all of their votes to one candidate even if there are multiple positions open. For example, if Seat A and Seat B are open for election, and a shareholder has 500 shares, that shareholder can opt to vote 1000 shares to a candidate in Seat A and not vote for Seat B (or could cast 750 for one, and 250 for the other).

Cumulative voting tends to benefit shareholders who hold smaller amount of shares by letting them add all their shares together for one person or election.

Statutory voting is the more traditional method where the shareholder would be able to cast a maximum of 500 votes per open seat.

You can Have Shareholders You Didn’t Want

You probably picked your shareholders, or at least, consented to allow them to purchase shares. Your shareholders may even be knowledgeable, active members of your company.

But shares in your company can be transferred to someone you don’t know or don’t want to be a  shareholder and they could be transferred without your knowledge or permission. This could leave you with business partners you don’t know, want, or who can’t or won’t do their part.

This is because shares can be transferred involuntarily when a shareholder files for bankruptcy, gets divorced, quits, or passes away. A shareholder’s creditors can even acquire shares to collect a judgment.

Your business can avoid this result by having Articles or Bylaws that specifically allow your company to buy involuntarily transferred shares, or which convert these shares to non-voting ones. In serious situations, your company may even want the option to dissolve entirely rather than take on an unwanted shareholder.

Do you have questions about how to best setup your business? Contact Tampa business and commercial law attorney David Toback to review your business agreements.

Resource:

sec.gov/fast-answers/answers-cumulativevotehtm.html