The causes for owners’ conflicts are numerous that often result in hardline disagreements over the direction and control of a company. If such disagreements are not resolved, this typically leads to an impending business separation or divorce. There are different ways to resolve a business separation, including negotiating settlement agreements or seeking formal court-imposed remedies under Florida’s Revised Limited Liability Company Act or Florida’s LLC statute under Chapter 605. If you choose to seek a split, here are initial issues to consider:
Does a Controlling Agreement (or Operating Agreement) Exist?
The analysis always begins with whether a controlling agreement is in place governing the event of a breakup. If a written agreement exists, it is usually in the form of an “operating agreement.” However, Florida’s LLC statute states that an operating agreement may not only be in writing but also can also be found to exist in oral form, implied in a record, or be a combination of both. In the event an operating agreement exists, such agreements govern the terms of the legal relationship. If the operating agreement is silent on a certain subject or if no agreement exists, Florida’s LLC statute will control and provide the default rules. However, it is important to note that Florida’s LLC statute sets forth certain rights that cannot be waived or contracted around by an agreement.
Obtaining Business Records
Suspicion and distrust are commonly an issue in breakups. Following determining what controls, the next step is obtaining records. Florida’s LLC statute mandates that members of an LLC are entitled to certain information that cannot be waived by an operating agreement. This entitlement includes documents such as a list of members, incorporation documents, operating agreements, tax returns, financial statements, and records reflecting current property. If a company refuses to produce the records, Florida’s LLC statute provides for the right to compel through court action.
Dissolution
If a negotiated settlement agreement cannot be reached between the parties, another option is seeking dissolution in the courts. Grounds for dissolution may be set forth in the operating agreement. A member or manager of an LLC may also seek judicial dissolution utilizing one of the grounds listed in Florida’s LLC statute. However, seeking a judicially imposed dissolution puts substantial control of the company in the hands of the courts. Once a court is empowered, a judge may issue injunctions, appoint a receiver or custodian to protect assets or run the business, or take other action it deems appropriate in its discretion.
Business disputes can be challenging as the personalities of the owners vary. The issues above are a starting point in navigating any breakup.
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