Did you know that divorces happen in business too? When one partner in the business becomes a problem for the other partner in running the business, sometimes “divorce” – or what lawyers call an “ouster” – is the only solution that will let the business carry on without both partners.
The first thing you should do, however, is sit down and discuss the problems you perceive with the problem partner. Try to open a dialogue rather than making accusations. Maybe you will find that, in their eyes, you are the problem and you’re the one who needs to make a change. Or maybe you disagree on how to run the business and there’s room for compromise. Or maybe you find that you’re the one who needs to leave. Either way, an open dialogue makes it easier to save the business.
Next, you’ll need a plan for fixing the problems. Either you will find that compromise or one of you will need to exit the business. Decide how to implement the plan, and if one of you is going to leave the business, you have to decide how exactly that will happen. You should formulate an exit strategy that details who is going to remain and run the business, what his or her obligations are to the other partner, what the value of the other partner’s interest in the business is worth, when and how the remaining partner will pay the other partner for his or her share of the business, etc. Put that into a contract and then execute the plan.
The best practice is to decide how you want to handle an ouster before either business partner becomes a problem for the other partner. You decide what would constitute grounds for an ouster (such as deadlock or dissension), and how the separation would happen. Then you put that into a Partnership Agreement, Shareholder’s Agreement or Operating Agreement (depending on the type of entity you formed) before you commence doing business together. In the event you did not do that, don’t panic. You can still avoid the “nuclear option” of dissolving the business to get rid of a problem partner. Fortunately, Florida Statutes provide some assistance.
The Florida Revised Limited Liability Company Act contains provisions that permit the involuntary dissociation of a partner (or in LLC parlance, a “member”). First, judicial expulsion provides for the involuntary dissociation of a member upon application by another member or the company to the court. Or, if the LLC cannot lawfully carry on its activities with the problem partner, a member can also be involuntarily expelled by the unanimous consent of the other LLC members.
Unfortunately, there is no provision to oust a troublesome shareholder under the Florida Business Corporations Act, but you can limit the damage that he or she can do to the ongoing business. The Act provides for the removal of a troublesome director by a majority vote of the shareholders or a troublesome officer by a majority vote of the directors of the corporation.
In the case of a partnership, under Florida’s Partnership Laws, a partner can be involuntarily dissociated by a unanimous vote of the other partners if it is unlawful to carry on the partnership business with such partner, or by judicial expulsion.
Need help to oust a problematic business partner? Call us at 407-792-0790 to set up a consultation.
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Rodney E. Luke, President, Luke Brothers Custom Homes