This partnership FAQ is only intended as an informative guide to common questions concerning Florida partnership disputes and is not legal advice. The details of partnership disputes are different and requires independent review and analysis. At Cantrell Astbury Kranz, P.A., our Florida partnership dispute attorneys routinely handle important partnership disputes, providing advice, negotiation, and litigation services.
1. What is a partnership and when is one created under Florida law?
Under Florida law, a partnership exists when two or more people associate to carry on as co-owners of a business for profit. There is no requirement for the people to actively intend to form a partnership—they must only intend to engage in business as co-owners. This can result in the creation of a partnership where people do not expect it, and, even where there is no written or verbal to form a partnership. In such a situation, the sharing of profits and losses is a good indicator of the required intent to form a partnership.
Where there is an express agreement to form a partnership, the formation, operation, withdrawal process, and dissolution of a Florida general, limited liability, or limited partnership are typically governed by: (i) the Florida Revised Partnership Act (ii) the Florida Revised Uniform Limited Partnership Act and (iii) the partnership agreement.
2. What are common partnership disputes that courts resolve in Florida?
The potential disputes that arise between partners are limitless, but the following five disputes frequently arise in Florida:
- Breach of a partnership agreement
- Breach of fiduciary duty
- Disputes concerning the use of the partnership’s funds or assets
- Disputes over decision-making authority for the partnership
- Allegations of fraud and misrepresentation
- Expulsion of a partner or the desire to expel a partner from the business
- Disputes over the partnership’s future business endeavors
3. What duties do partners owe each other in Florida?
Partners owe each other the limited fiduciary duties of loyalty and care under Florida Statute § 620.84.04 , regardless of whether the same are called for in a partnership agreement. The duty of loyalty includes the obligations to (1) hold in trust and funds/property held by the partnership, (2) avoid self-dealing with the partnership to the detriment of the partnership, (3) avoid direct competition with the partnership, and (4) refrain from acting on behalf of adverse parties. The general duty of care requires partners to carry out any partnership conduct without gross negligence or extreme recklessness.
Common examples where a partner may have breached their fiduciary duty include situations where a partner misappropriates the partnership’s assets or uses the assets for their own personal benefit. A partner also may have breached their fiduciary duty if they award a business contract to a company that they own; a partner performs “work on the side” for certain current or former partnership clients; a partner knowingly takes an action to injure the partnership; or a partner discloses confidential company information to someone that is not affiliated with the partnership.
If a partner breaches their fiduciary duties, the other partner or partners may be able to obtain an injunction or recover compensatory damages. In certain situations a court may even award punitive damages to punish a partner for particularly egregious conduct.
Additionally, disputes related to the breach of a fiduciary duty may even arise after the termination of the partnership. Even after the conclusion of the partnership—or after the death of a partner—the partner or personal representative of a deceased partner engaged in the liquidation of the partnership affairs has an obligation to give notice to other partners of any profit the partner derives without the consent of all other partners.
4. What to do when partners disagree on use of company assets?
Sometimes partners will disagree about how to best use partnership assets. Unlike a breach of fiduciary duty, no partner has an ulterior motive, but it can still hinder a company all the same. Ideally, the partnership agreement would address partner gridlocks and who has the authority to make decisions, but, if there is none, this can lead to the need to retain an attorney to guide you through the deadlock or to seek relief in court.
5. Can a partner be removed from a partnership in Florida?
Typically, a partnership agreement will address how a partner is properly removed and the rights and obligations of all parties in the event a partner is removed or a breakup, split, or dissolution occurs. Many partnership agreements specify particularly egregious conduct that would qualify for the expulsion of a partner.
Florida’s partnership statute also allows for the expulsion of a partner via unanimous vote of the other partners in situations where it is illegal to continue in business with that partner. A partner may also ask a court to expel another partner for wrongful conduct.
6. Does a partnership in Florida have to continue to employ a minority partner?
This should be addressed in a partnership agreement, but, absent such an agreement, a court will look at whether the partner was required to invest capital in the corporation and whether the partner was employed at or around the same time they became a partner. The guiding standard is whether, objectively, the terminated partner had a reasonable expectation of continued employment. Florida courts have deemed the termination of a minority partner to be a breach of the fiduciary duty and good faith. In such a situation, a minority partner can be entitled to severance payment or possibly dissolution of the partnership.
7. What is a partnership accounting in Florida?
If a partnership is simply untenable and the partners cannot work out a resolution to amicably end the partnership (i.e., one partner wants to continue, but the other does not), an accounting may be proper. An accounting involves a thorough investigation of the finances of a partnership and all of its financial transactions to adjudicate the relative compensation rights of partners. In other words, the goal of an accounting is to determine who owes who what. This may involve a court adjusting the accounts of the parties or forcing the return of funds if a partner has acted improperly. An accounting may be available either at common law or pursuant to Florida Statute § 620.8405.
Under common law, a partner is entitled to an accounting by virtue of their status as a partner, provided that an award of damages without an accounting is inadequate. These situations typically arise when a partner violates a fiduciary duty and there have been many complex transactions that must be unraveled in order to reach an equitable solution. Florida statutes provide for an accounting upon the winding up of the partnership business.
A partner bringing a common law accounting claim may be able to recover attorneys’ fees and costs, including the cost of experts, as a part of their recovery due to the nature of the claim. Such an award is generally payable out of the partnership’s assets.
8. Are there steps to take before seeking an accounting in Florida?
Florida Statute § 620.8403 allows all partners access to the books and records of a partnership. In most situations, if a violation is suspected, it is wise to seek access to the books and records before initiating a lawsuit to obtain lower cost information and to vet a potential lawsuit for an accounting, prior to incurring the expense of a lawsuit. This is also a good option for a partner that wants to attempt to resolve a dispute with other partners outside of the courtroom.
9. How can partnership disputes in Florida be resolved apart from litigation?
Yes. Many partners choose to resolve disputes outside of the courtroom for a multitude of reasons, including the desire of both partners to keep a dispute low profile, the need for a quicker resolution, and the desire to reach a non-conventional agreement for how the dispute should end.
One option for addressing a dispute is through arbitration, where a neutral third party makes a legally binding decision for the parties. The benefit of arbitration is that the partners can agree to a decisionmaker, which can be attractive to partnerships in niche areas where a decisionmakers’ expertise in or knowledge of a particular industry may be beneficial. Additionally, there is a level of confidentiality that can be obtained through arbitration that is not available in a court proceeding.
Negotiation, whether through the mediation process or another informal process, is another popular option because it allows the partners to think creatively to reach a resolution that works for all partners. Negotiation can be done at any stage, but sometimes is appropriate from the outset where one partner wishes to be finished with the partnership and/or another partner wants to buy that partner’s interest. While it can be tempting to forego the expense of an attorney, such a mistake is frequently more costly than the attorneys’ fees and can lead to massive headaches for all parties involved.
10. Are attorneys’ fees recoverable in Florida for prevailing in a partnership dispute?
Attorney fees are often recoverable in partnership disputes. Specifically, a partnership agreement may allow for the recovery of attorney fees for the prevailing party in the event of a dispute. The Florida partnership statement also allows for recovery of attorney fees under certain circumstances. To determine whether attorney fees are recoverable in a given situation, it is prudent to speak with a Florida partnership lawyer.