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It’s not always easy to know what to do when business partners don’t keep their word. You need to enforce your contract rights for the sake of your business and clients, but how do you move forward? Your company may still be running; you may need your partner’s cooperation to get things back on track.
Even if you’re prepared to expel your partner or dissolve the partnership entirely, you’ll have to proceed carefully, especially if you don’t have everything in writing. A Florida business attorney can help you understand your options.
Business Partners in Florida Law
In Florida partnerships, there are two types of business partners—general and limited. A general partner has the power to control and manage the business, but they can have personal liability for the partnership’s obligations (with some exceptions). Limited partners are not personally liable for partnership obligations, but they do not have governing power in the business, except for voting rights and any delegated powers they may receive. See § 620.1406.
To create a partnership as a business entity, partners generally register with Florida’s Department of State and choose a corporate structure, selecting general or limited liability options for the partners. Even so, it’s possible to be in a business partnership without knowing it—at least so far as a court is concerned.
Under Florida law, an “association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.” See Fla. Stat. § 620.8202(1).
This is called a de facto partnership, and it is very risky. In a de facto partnership, the associates are considered general partners, which means they could be liable for each other’s contract promises or lawsuits against the business. See § 620.8306. If you believe you may be in a de facto partnership, talk to a business attorney as soon as possible, particularly if you’re concerned about a broken contract.
When a Partner Breaks a Contract: Weighing the Options
Litigation: Is It Right for Your Business?
A partner has the right to sue another partner for a breach of contract or of the partnership agreement. The partnership also has the right to sue. See §§ 620.8404, 8405. In a lawsuit, you could request:
- Injunctive relief—a court order requiring the partner to stop breaching an agreement
- Monetary damages for a breach of the partnership agreement
- Disassociation (expulsion) of the partner, if they have committed a “material breach of the partnership agreement or of a duty owed”
- Dissolution of the partnership when it “is not otherwise reasonably practicable to carry on the partnership business”
See §§ 620.8405, 8601.
However, these are not the first options. Nobody wants to go to court when they can still hope to settle the issue quickly or amicably. Your options will depend on the circumstances and the best choice for your business.
Do you want the partner to do what they contracted to do, or would you rather have compensation? Are there other partners, and do they agree with you? Do you want the breaching partner to stay or to leave? How does the business depend on that partner’s involvement—or does it?
Resolution through Terms of an Agreement
If your partner breached a separate contract with you or with the partnership, there may be appropriate ways to resolve the breach through the terms of the contract. For example, when someone contracts to provide services and fails to perform, the contract may allow for liquidated damages—a sum of money. When the contract involves unique goods or services, you may want specific performance: an order to follow through.
Your partnership agreement may also provide a method of dispute resolution, such as a vote. Simply speaking to your business attorney can often help bring the breaching partner to understand the seriousness of the situation and agree to accept a resolution.
However, some disputes are deeper and harder to solve, especially if the partnership agreement doesn’t offer a better solution than a vote to expel or dissolve, which no one may want.
Alternative Dispute Resolution (ADR): Mediation and Arbitration
Mediation involves coming to the table under the guidance of a neutral party to discuss and hopefully settle the matter. Arbitration is more formal; the parties must agree to abide by the result. As in a court hearing, arbitrators review evidence and issue binding decisions.
In a situation where the partners need to salvage a working relationship or negotiate a buyout, ADR—particularly mediation—can provide a more human solution. It is also far less time-consuming and expensive than a lawsuit.
Nonetheless, participating in ADR requires a certain amount of remaining trust between the disputants. When that trust is damaged beyond repair, litigation may be necessary.
Business Counsel in Orlando
At Bloodworth Law, PLLC, we understand today’s business environment. The stakes are high, but the personal element of business—especially in partnerships—means it takes wisdom and experience to determine the right solution for everyone. Call us today at 407-449-8958 to schedule a free first consultation with us in Orlando.
