Tampa, Florida, Partnership And LLC Member Dispute Attorneys
Mitchell L. Feldman, Esq., represents partners and LLC members in disputes related to their ownership, employment and compensation in closely held companies of all kinds. We have represented attorneys, doctors and franchisee owners in all sorts of disputes related to the freeze out, termination and oppressive conduct of partners or LLC members. Contact Feldman Law Group PA for practical, strategic legal advice in any situation where your interests and rights are concerned.
Can A Partner Be Fired Without A Remedy Or Right To Further Compensation?
A partner’s rights in a partnership are determined by the partnership agreement and control the rights and duties of the partners unless in conflict with partnership laws, such as the Florida Revised Uniform Partnership Act.
Partnership agreements should typically address the terms upon which the equity will be split, the rights and responsibilities of all parties in the event of a break-up or split or dissolution of the partnership. Florida’s Revised Uniform Partnership Act addresses how a partnership may disavow another partner from the partnership. If the partnership agreement is silent on the buyout of the terminated minority partner’s share, costly litigation may be the only alternative if the majority refuses to buy out the minority partner’s equity interests.
When it comes to determining your rights as a partner, we consult a team of financial professionals, such as forensic accountants and business valuation experts, to assist in negotiations and, if necessary, litigation.
If you are involved in a dispute with other partners to a partnership agreement, you should consult experienced, dedicated and savvy attorneys to protect your interests. Contact Mitchell L. Feldman, Esq., Florida’s partnership dispute attorneys.
Question: Does the minority partner have a reasonable expectation of continued employment?
Florida follows many states, such as New York, New Jersey, Texas, Utah, North Dakota and Pennsylvania, in recognizing a reasonable expectation of continued employment. In these cases, the courts deem the termination of the minority partner’s employment as oppressive and unlawful conduct in breach of their fiduciary duty of loyalty and good faith. The remedy for the minority partner is severance payment and forcing the partnership to be dissolved. In some cases, the courts hold that the decision to terminate the minority partner and stop paying his or her salary was oppressive conduct, calling for dissolution of the partnership.
Q: What happens if a retired partner dies?
The survivors, such as a surviving spouse may have a reasonable expectation of continued salary or wages, plus share of the profits that the retired shareholder was receiving.
Q: What factors do courts look at as to whether there exists a right of continued employment?
A partner has a legally recognized privilege and power associated with ownership interest in a corporation. Courts will look at whether the partner at issue was required to have invested capital in the corporation, and whether the partner was employed at or around the time he or she became a partner. Ultimately the court will decide whether the controlling partners’ conduct was oppressive, and whether the terminated partner’s reasonable expectations have been frustrated by the conduct of the oppressive partner(s).
The relationship between partners to a partnership should have a written partnership agreement, one which spells out all rights, duties and responsibilities, and addresses all situations which may occur related to the separation or termination of a partner’s employment, or the dissolution of the partnership.
Seeking A Dissolution Of The Partnership Is Like A Divorce From Your Partner Or Partners
Business partners are often family members and friends who have fallen into a situation of irreconcilable differences in how the business is to be run. Litigation and lawsuits between partners can be expensive and put a huge financial strain on the business. The alternative is to seek a financial accounting of the entire business. An accounting is a legal cause of action in which a party requests an equitable settlement of claims and liability arising out of its relationship with another party. An accounting allows a court to balance the equities, adjust the accounts of the parties and render complete justice between them. See Scott v. Caldwell, 37 So.2d 85, 87 (fla 1948). In order to bring an action for equitable accounting, the following action must stem from either 1) a confidential or fiduciary relationship, or 2) extensive or complicated transactions. According to the Revised Uniform Partnership Act, an accounting is defined as a statement of receipt and disbursements which shows all of the detailed financial transactions of the business, including a listing of the original contributions and current assets and liabilities of the partnership. This is a complete and comprehensive investigation of transactions involving the various partners and adjudication OF THEIR RELATIVE RIGHTS.
The court will first determine if there is an entitlement to an accounting in phase 1. The accounting will be phase 2. This is a bifurcated process. F.S. 620.8801 also provides a statutory right to a partnership accounting upon winding up the business.
No formal partnership agreement is necessary for there to be a legally created partnership. According to the Revised Uniform Partnership Act, CH 620, a partnership is formed as a matter of law as soon as two or more people associate to carry on as co-owners of a business for profit. There is no requirement that the parties subjectively intend to create a partnership, only that they intend to engage in business as co-owners. The sharing of profits and losses is an indicator of the intent to form a partnership. A plaintiff seeking a partnership accounting must plead both the following elements: 1) he or she is part of a partnership that has failed to account to plaintiff, and 2) the remedy at law is inadequate.
In a partnership accounting claim, there is an exception to the general rule that each party bears its own attorney’s fees, absent a statutory basis or contractual basis. Dade County v. Pena, 664 So.2d 959, 960 (Fla. 1995). A partner bringing an equitable accounting claim can recover attorney’s fee and costs, including cost of experts.
A trial court has broad discretion in awarding attorney’s fees in both phases of a partnership accounting. Wade v. Clower, 114 So. 548, 552 (FLA. 1927). The costs of experts and attorney’s fees are generally payable out of the partnership.
A partner must seek partnership dissolution or an accounting in order to recover its attorney’s fees.
Limited Liability Company (LLC) Member Disputes
Although most LLC companies have operating agreements which set forth the members rights, duties, remedies and the terms and conditions of ownership, not all such operating agreements address the issues of member oppression or other disputes which may arise.
Florida’s Limited Liability Act Chapter 608 Florida Statutes, (Revised Limited Liability Company Act or the NEW LLC Act takes effect January 2015) governs limited liability companies. Any business, whether run as a partnership, equity shareholder corporation or as an LLC membership, is not immune from disputes and strife among managers and owners. The first step is analysis of the LLC operating agreement. Where the operating agreement falls short of addressing the situation, Florida’s Limited Liability Company Act fills in the gaps and is the default.
What Happens If Some LLC Members Are Using Company Funds For Their Own Personal Benefit And To The Detriment And Exclusion Of Other LLC Members?
In most well-crafted operating agreements, such conduct would be grounds for expulsion upon vote of the majority members. If a member has materially breached the articles of organization or the operating agreement, including theft or embezzlement, the other members may file suit for breach of contract and breach of fiduciary duties. In a situation where a managing member’s conduct has harmed the business or the company’s assets, or the value of the member’s shares in the company, the remaining members usually have a set period of time after voting to expel the member, and to then buy out that person’s membership interest. The remaining members will then operate the company according to the terms of the operating agreement, unless they elect to dissolve the company.
The rest of the LLC members typically have a set period of time to come to an agreement on the purchase price of the expelled member’s shares before there becomes a mandatory process of hiring a third-party appraiser to value the interests.
Each LLC member and manager owed a duty of loyalty and duty of care to the LLC and the other members of the limited liability company pursuant to F.S. 608.4225(1).
Members may take action against other members whose conduct involves the failure to: account for the operation of the LLC; make payments or give credit; properly distribute or account for the assets; provide members with information and access to LLC records; refrain from competing with the LLC or taking a materially adverse business position; or provide adequate documentary support with regard to capital contributions or business expenses.
According to the LLC Act, the termination of a member’s interest does not automatically trigger dissolution of the LLC. The remaining members must commence judicial intervention to force the person out, absent an operating agreement with a specific section on point.
If you have any concerns that the managing LLC member(s) are operating the company to your detriment, breaching their duties to the LLC or to the other members, you should consult an LLC membership dispute attorney such as Mitchell L. Feldman, Esq. to explore your rights and obtain strategic, practical advice on how to proceed to protect your membership interests and the LLC’s interests.
If you have questions about the Revised Limited Liability Company Act to take effect in 2015, and how that affects your LLC, your LLC membership agreement or your rights, consult an experienced LLC membership attorney or law firm such as Mitchell L. Feldman, Esq., We have represented LLC members in a broad spectrum of disputes, withdrawals, expulsions and dissolutions, including oppressive and unlawful conduct by the managing members.
Each LLC member should now consult with an attorney to determine how the 2015 Revised Limited Liability Company Act will affect him or her and his or her operating agreement. The new law changes include the following:
1) Expanded list of non waivable provisions; 2) elimination of the managing member concept; 3) the power to dissociate as a member; 4) member and manager liability for inaccurately filed information; 5) new statement of authority concept; 6) additional appraisal rights; and 7) new fairness standards evidentiary burdens in connection with conflict of interest transactions.
The attorneys at Mitchell L. Feldman, Esq. assist employees involved in overtime and wage and hour disputes as well as employment discrimination matters in Tampa, Miami, Broward County, Fort Lauderdale, Saint Petersburg, Clearwater and throughout Florida.