Voting Rights and Voting Deadlocks

What are voting rights and voting deadlocks?

Voting rights are the legal entitlements of an organization’s shareholders or members to vote on matters such as the election of directors, mergers and acquisitions, changes to the articles of association, and other critical business decisions. The right to vote is a fundamental feature of corporate governance, allowing shareholders or members to control the company’s direction.

On the other hand, voting deadlocks occur when a vote on a particular issue results in a tie or stalemate, preventing any decision. Voting deadlocks can occur in various situations, such as in closely-held corporations with equal voting shares held by two or more shareholders. Deadlocks can also arise in partnerships, limited liability companies, and other business organizations where multiple decision-makers have equal voting rights.

Various legal mechanisms, such as mediation, arbitration, or litigation, often help resolve deadlocks. In some cases, the articles of association or bylaws of the organization may provide specific procedures for breaking deadlocks, such as requiring a supermajority vote or using an outside mediator or arbitrator. In extreme cases, if deadlock persists and compromises the company’s ability to make decisions, a court may intervene and appoint a receiver or liquidator to wind up the company’s affairs.

Need help with a matter related to voting rights and voting deadlocks? Schedule your consultation today with a top shareholder disputes and derivative litigation attorney.

Which laws and regulations apply to voting rights and voting deadlocks in Florida?

The Florida Business Corporation Act (FBCA) governs voting rights and deadlocks for corporations. Under the FBCA, each share of stock generally entitles the shareholder to one vote unless the incorporation articles provide a different voting structure. In cases with a tie vote or other deadlock, the FBCA provides several mechanisms to break the impasse, including allowing the board of directors to cast a deciding vote or requiring a supermajority vote.

For limited liability companies (LLCs), the Florida Revised Limited Liability Company Act (FRLCA) provides rules for voting rights and deadlocks. Unless the operating agreement provides otherwise, each member of an LLC is entitled to one vote, and the approval of a majority of the members is a prerequisite for most actions. In cases where there is a deadlock, the FRLCA allows members to petition a court for judicial dissolution of the LLC or for the appointment of a custodian to manage the affairs of the LLC.

For partnerships, Florida law recognizes both general partnerships and limited partnerships. Each partner generally has equal voting rights in a general partnership unless the partnership agreement provides otherwise. For example, in the case of a deadlock, the partnership agreement may provide for a buyout or other mechanism to resolve the stalemate. In a limited partnership, the general partner typically has the right to control the management of the partnership unless the limited partnership agreement provides for a different structure.

What are common issues regarding voting rights and voting deadlocks that lead to litigation?

There are several common issues regarding voting rights and voting deadlocks that can lead to litigation, including:

• Disagreements over control: In closely-held companies, disputes can arise over who should control important decisions, such as the election of directors, mergers and acquisitions, and other significant business transactions.
• Breach of fiduciary duties: Board members and other corporate officers owe fiduciary duties to the company and its shareholders, including the duty of loyalty, the duty of care, and the duty of good faith. When board members or officers act in their self-interest or breach these duties, litigation may ensue.
• Valuation disputes: In cases with a deadlock over a sale or other transaction, disputes can arise over the valuation of the company or its assets.
• Shareholder oppression: In some cases, the majority shareholders may engage in conduct that unfairly prejudices the minority shareholders, such as withholding information, limiting access to financial records, or diluting the minority shareholders’ voting power.
• Disputes over the interpretation of governing documents: Deadlocks can arise over the interpretation of articles of incorporation, bylaws, operating agreements, or partnership agreements, mainly when these documents are ambiguous or conflicting.
• Deadlocks over major business decisions: When a decision must be made on a significant matter, such as a merger or acquisition, and the parties cannot agree, a deadlock may lead to litigation.

When a set of facts is appropriate to meet the requirements giving rise to potential problems with voting rights and voting deadlocks, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path forward to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation.

Frequently Asked Questions

1. Can a minority shareholder block a significant decision?

In some cases, a minority shareholder may be able to block a significant decision, such as a merger or acquisition, if they hold a sufficient percentage of the voting power.

2. What is shareholder oppression?

Shareholder oppression refers to conduct by majority shareholders that unfairly prejudices minority shareholders, such as withholding information, limiting access to financial records, or diluting the minority shareholders’ voting power.

3. What is the business judgment rule?

The business judgment rule defends the decisions of corporate officers and board members as long as they act in good faith and with reasonable care.

4. How can I protect my voting rights as a shareholder?

Shareholders can protect their voting rights by reviewing the company’s governing documents, attending shareholder meetings, and seeking legal advice if necessary.

Have more questions about a voting right or voting deadlock-related situation?

Crucially, this overview of voting rights and voting deadlocks does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.