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It is a fundamental premise that ownership of a corporation is evidenced by stock certificates.  However, this is not always the case with small, closely held corporations that do not sell stock on a market.  Sometimes those corporations do not issue certificates.  To accommodate that realty, Florida law allows for the equitable or beneficial ownership of stocks.  Indeed, Florida statute section 607.0626 allows issuance of shares of stock without certificates, provided that the articles of incorporation and bylaws do not provide otherwise.  The law regarding equitable and beneficial ownership of stocks, however, is grounded in case law.  Peter Mavrick is a Fort Lauderdale business litigation attorney who has extensive experience in representing the interests of businesses and business owners.

This concept of stock ownership is an important factor when someone believes that he or she has an ownership interest in a corporation but was not issued shares, and he or she wants to sue the corporation.   By showing that the person is an equitable owner of stock, that person may acquire standing to sue the corporation in a derivative action or an action to dissolve the corporation.  As Florida’s Third District Court of Appeal explained in Kaplus v. First Continental Corporation, 711 So. 2d 108 (Fla. 3d DCA 1998), “Florida courts have, to date, apparently aligned themselves with these jurisdictions which recognize that strict record ownership is not necessary and that holders of equitable or beneficial interest in shares have standing to sue.”

The determination of whether someone owns stock that was not transferred by certificate is an issue of fact and can become quite complicated.  An example is Acoustic Innovations, Inc. v. Schafer, 976 So. 2d 1139 (Fla. 4th DCA 2008).  The company Acoustic Innovations was owned by Mr. Miller.  One of his employees was Mr. Schafer.  While Mr. Schafer was an employee of Acoustic Innovations, Mr. Miller sent him a letter promising to give him thirty percent interest in the corporation upon sale or merger of the company.  Mr. Schafer signed the letter.  Mr. Miller later terminated Mr. Schafer’s employment and paid him a severance that Mr. Schafer deemed insufficient, due to the letter agreement.

Mr. Schafer filed a lawsuit, arguing that he was a shareholder of Acoustic Innovations.  He sought a declaratory judgment finding that he was a shareholder, an equitable accounting, breach of fiduciary duty, and dissolution of Acoustic Innovations.

Mr. Miller argued that Mr. Schafer was not a shareholder and had no standing to sue Acoustic Innovations because he was not a shareholder.  No stock certificates were ever issued to Mr. Schafer.  A bench trial was held, and Mr. Schafer won.  Mr. Miller appealed.  The appellate court affirmed the trial court’s ruling in favor of Mr. Schafer.

The appellate court’s opinion made reference to evidence at trial that Mr. Miller repeatedly assured Mr. Schafer that he would honor his agreement in the letter promising to give Mr. Schafer an interest in the corporation.  Citing precedent, the appellate court in Acoustic Innovations explained that it “is possible under some circumstances for one to own stock in a corporation though no certificate has been issued to him.”  The appellate court went on to find, “Moreover, strict record ownership is not a prerequisite for the holders of equitable or beneficial interests in shares of stock to have standing to sue.”  As a result, the appellate court determined that the trial court was correct to find that Mr. Schafer was an equitable and beneficial owner of stock in Acoustic Innovations.

Because the determination of whether someone has an ownership interest in stock despite the lack of a stock certificate is very fact intensive, it needs to be assessed on a case by case basis.  Nevertheless, it may be useful when someone legitimately relied on broken promises, made in writing, to convey an ownership interest in a corporation.

Peter Mavrick is a Fort Lauderdale business litigation lawyer who regularly represents business in legal disputes in trial courts, appellate courts, and arbitration proceedings.  This article does not serve as a substitute for legal advice tailored to a particular situation.

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