Nicholas M. Fiorello, left, and Harsh Arora, right, with Kelley Kronenberg.

As of Jan. 1, comprehensive revisions to Chapter 607 cited as the Florida Business Corporation Act (FBCA) became effective. The FBCA was revised to synchronize the FBCA with the Revised Model Business Corporation Act (Model Act) (on which the FBCA is largely modeled), simplify the language used, harmonize with the Florida Revised Limited Liability Company Act (FRLLCA) where considered appropriate, and to create more organization within the Act itself, especially through corrections to cross references contained within. Among the reasons for such significant changes to the FBCA, it is most noticeable that the revisions were drafted in order to create consistency, uniformity, and harmonization among the FBCA, FRLLCA, and the Model Act. According to the House of Representatives staff analysis of Bill CS/CS/HB 1009, Business Organizations, dated April 18, 2019, detailing the comprehensive revisions to the FBCA, the FBCA regulates approximately 778, 913 corporations existing within the state of Florida. Thus, the revisions to the FBCA are vital to corporations in assessing Florida's corporate landscape to plan and prepare for what may lie ahead.

One area of significant importance is judicial dissolution of Florida corporations. The formal process of dissolution effectively ends the Florida corporation's existence as a state-registered business entity while also removing its connection to anyone who may wish to bring an action against that corporation, effectively leading the corporation to "wind up." Dissolution can be voluntary (by the corporation's shareholders) or involuntary (through court order or failing to perform administrative tasks required by the state).

The revisions to the FBCA have added two new sections to the existing FBCA to bypass the rigidity of judicial dissolution proceedings while increasing the court's ability to use discretion to choose alternative methods in lieu of judicially dissolving the entities in Florida. These additional remedies provided are limited to situations that are outside the context of a judicial dissolution proceeding. In situations outside the context of seeking a judicial dissolution, the revisions allow the appointment of a receiver or custodian (in two limited situations) or provisional director.

The first provision added to the FBCA is Section 607.0748, which is based on Section 7.8 of the Model Act. Section 607.0748 opens the door for shareholders of a corporation to attain appointment of a receiver (an agent of the court) or custodian (an agent of the corporation) in two specific situations arising outside the context of seeking a judicial dissolution: when irreparable injury to the corporation is threatened or being suffered due to shareholders being unable to break a deadlock of the directors in the management of corporate affairs or when irreparable injury to the corporation is threatened or being suffered due to directors or those in control of the corporation are acting fraudulently. By adding this section into the FBCA, courts are now expressly granted, within their authority, the autonomy to appoint a receiver or custodian in the specific situations identified above in lieu of terminating the corporation through the judicial dissolution process. Without granting this autonomy, courts were only given power to grant a receiver or custodian in conjunction with proceedings for judicial dissolution.

Completely new and not based on the Model Act, is Section 607.0749, the second provision added to the FBCA, which is a repercussion of Section 607.1435 (allows court to appoint provisional director to act with full power and authority along with corporation's other directors) which was added to the FBCA in 1994. Section 607.0749 allows courts to appoint a provisional director outside the context of seeking a judicial dissolution when shareholders are unable to break the deadlock of directors in the management of the corporate affairs. Similar to the effects of Section 607.0748, without Section 607.0749 added to FBCA, courts were only given power to grant a provisional director in conjunction with proceedings for judicial dissolution.

Usually, when an entity is formed, dreams of success are usually the only thoughts of those forming it. But, as the life of the corporation continues on, relationships may sour or business may not prosper, leading to eventual (and sometimes inevitable) dissolution of the corporate entity. By adding Sections 607.0748 and 607.0749, corporations, both those already in existence and those that intend to be formed, have been provided an opportunity to plan for the potential, undesired corporate "break-up." By adding these sections to the FBCA, the legislature has highlighted issues revolving around the lack of planning by those incorporating corporate entities, and has provided an avenue for shareholders to be more thorough, in order to avoid problematic issues down the line, which, in turn, may prevent operating businesses from not dissolving due to some bad actors.

Sections 607.0748 and 607.0749 have laid the foundation for wide-ranging impacts to the corporate landscape. This foundation can also be supplemented by gap-filling provisions in corporate documents (e.g., shareholder agreements or bylaws), created to advance the underlying ideologies behind these sections. Both of these sections, in conjunction with similar, gap-filling provisions can impact the corporate world in many ways, such as, but not limited to: shortening the time for resolution of controversies; less adversarial proceedings; motivating shareholders to resolve issues in a more expeditious manner; and prevent businesses from winding up affairs after actions of noncooperative shareholder(s) who refuse to comply or work together with the other shareholders, officers, or directors in order to resolve ongoing corporate issues.

In addition to these sections added to FBCA, which provide avenues to corporations to attain appointment of a custodian or receiver under Section 607.0748, or a provisional director under Section 607.0749, corporations, both those already in existence and those forming, should amend or add provisions to the corporate documents which expand on the ideologies presented by these added Sections. Also, by adding gap-filling provisions to expand on the Sections added to the FBCA, courts will be further directed as to how to provide aid to answer those questions left unanswered by these sections, thus, assisting the court in resolving issues much more efficiently and expeditiously. Terms of certain gap-filling provisions added to corporate documents can supplement what Sections 607.0748 and 607.0749 prescribed, and can aid the courts in enforcing such terms, when issues are in dispute. When terms are not ambiguous, courts can guide parties more effectively when assisting in the resolution of corporate issues as per the previously agreed upon arrangements of the shareholders.

As Sections 607.0748 and 607.0749 do not provide for recovery of fees and costs, parties could add provisions to the corporate documents allowing a party to seek fees and costs from a non-cooperative shareholder. For example, parties could provide a provision to fill the gaps not provided for by these Sections added to the FBCA, such as a requirement for mandatory mediation, or formal or informal conciliation, for the parties involved to come together and decide who to appoint as the receiver, custodian, or provisional director, if needed. Provisions like these could provide that non-cooperative shareholders pay the fees and costs associated with their antics if court intervention is needed. This would prevent those involved from playing games, and, as issues may arise down the line, provisions such as these can help prevent further litigation. Of course, these potential provisions are simply examples, as Sections 607.0748 and 607.0749 provide the opportunity for counsel, and their clients, to tailor provisions to meet the needs of the subject corporation and/or business. Also, the opportunity has been provided for counsel to effectively assist shareholders to comply and resolve issues prior to seeking judicial dissolution or any other judicial intervention.

Lastly, adding provisions to supplement Sections 607.0748 and 607.0749 of the FBCA can help curb parties' expectations and allow attorneys to counsel parties, along with their expectations, much more efficiently by providing attorneys an avenue to better determine the landscape and the chances at a successful outcome. By adding provisions to corporate documents, parties could agree on the credentials of who the appointed custodian, receiver, or provisional director would be in the event of the necessity of appointment, removing another area of dispute and potential litigation.

Now that these issues have been put in front, and are out in the open, attorneys, shareholders and corporate businesses have been put on notice to prepare preventative provisions when incorporating, or, if already incorporated, to rethink amending current corporate documents for effective corporate governance.

Harsh Arora is a partner with Kelley Kronenberg in Fort Lauderdale, Florida. He focuses his practice on business litigation and handling complex and international corporate transaction matters. He has represented privately held corporate businesses as their outside general counsel. Contact him at [email protected].

Nicholas M. Fiorello is an attorney at the firm. He also focuses his practice on business litigation and handling corporate transaction matters. Contact him at [email protected].