Understanding Florida Partnership Agreements
A Florida partnership agreement is a legal document, which establishes the rights and obligations between and among business partners (owners) that are commonly known as partners. The Florida partnership agreement is a contract that may be oral or written. However, some types of Florida partnerships must include a formal, written partnership agreement for it to be enforceable in court. A Florida partnership agreement will embody the partner’s understanding about their mutual rights in the following ways:
Florida Partnership Agreements can be created "for a cause" or as "at will" partnerships. When a Florida partnership is created "for a cause" , a Florida partnership agreement is specifically formed for a set period of time, usually by the terms and conditions defined in the partnership agreement. On the contrary, an "at will" Florida partnership agreement has no expiration until the partnership is terminated under Florida law or the partners (owners) mutually terminate the partnership agreement.
Key Components of a Florida Partnership Agreement
Many novice business owners incorrectly believe that starting a business without a written agreement can be done with few, if any, repercussions. If all goes well, they think, then they don’t need an agreement; if the business fails, then they don’t have the time or the resources to pursue a partner legally. Both cases are shortsighted and almost guaranteed to lead to more conflict down the road.
Perhaps the most important reason to form a written agreement between yourself and your Floridabased partners is to clearly define responsibilities, goals, and standards for the partnership. When your agreement clearly lays out these terms, it becomes the foundation for future decision-making, dispute resolution, and even dissolution of the business.
Some of the factors you should include in your partnership agreement are:
Finances. Before you start a joint venture, how much capital is each partner providing? Is there an option for additional investment in the future? Does each partner have equal say in financial matters, or is one responsible for handling incoming funds? How do you plan to divide profits? Are business expenses shared equally? If one partner loses a significant sum of money, how does it affect the other partners? Does one partner compensate the other(s) for their share of lost earnings? All of these are important considerations to discuss with your partnership lawyer before you commit to the business.
Roles. No matter how many partners you have, it is critical for you to establish who does what when it comes to running the company. You must be on the same page when it comes to day-to-day responsibilities. This includes hiring and firing employees, signing checks, selling shares, and transferring ownership in the event of death.
Decision-making. Establish whether you will make major decisions by consensus, whether you require a pre-set majority or whether each partner has the ability to veto decisions made by the others. Consider defining limits on what constitutes a "major decision," including sale of the business or hiring or firing of key employees.
Theoretical agreement is the cornerstone of any business relationship. Consider the scenario whereby partner A wants to fire an employee for legitimate reasons, but partner B refuses to let go of the employee for emotional reasons. An open discussion in theory about a specific limit on which decisions require a unanimous vote or those that require a majority is critical to the success of any business.
Legal Guidelines and Requirements
In Florida, a partnership agreement is not specifically required under law for a partnership to be formed or considered valid. However, these contracts are imperative for defining each partner’s rights, obligations, and responsibilities in the event of a dispute or the dissolution of the partnership. If the partnership agreement is well-crafted at the beginning of the partnership, it can help avoid complications further along the road down the partnership track.
A partnership agreement may be oral, written, and in Florida the law does not even require it be filed with a government office. Even so, to comply with federal laws requiring tax information, once a partnership has been formed, it must apply for and obtain an Employer Identification Number through the Internal Revenue Service (IRS). In addition, where circumstances dictate, a partnership should also consider filing a certificate for a Fictitious Name with the Florida Department of State Division of Corporations (the Florida "Fictitious Name Act"). This is particularly the case with the Federal Employer Identification Number (FEIN), which is used for the purposes of all federal tax and wage reporting, such as annual federal income tax, and IRS quarterly payroll tax returns.
Benefits of a Template
A Florida partnership agreement template is an invaluable tool when organizing your business even if you have an experienced business lawyer guiding you in the creation of your agreement. A professional lawyer is undoubtedly of great value, yet a template offers substantial advantages. A professional attorney should always be involved, but there is no reason to reinvent the wheel. In fact, a template is certain to make things easier for you. An agreement template simplifies the process of creating a legally-sound partnership agreement between yourself and one or more other partners. You can fill out the template easily to include all of the terms under which the partnership will operate. All of the critical information needed to draft a valid Florida partnership agreement is contained in the template. A template also helps to ensure compliance with all Florida laws governing the creation of a valid partnership. It is likely that a reputable, precisely written Florida partnership agreement template has already been reviewed and approved by a lawyer. The reality is, however, that the vast majority of people don’t have access to this kind of legal assistance. Fortunately, an agreement template makes it easy for anyone to create a valid and legally-binding agreement with their partners. Once your agreement is filled out completely and printed with both signatures, there’s a great feeling of satisfaction when the job is done. You’ll be able to experience the partnership you dreamed of without any true worries about surprises. This is a great way to make sure that your partnership is as hoped and intended. It will also save precious time and money that might be spent trying to recover from a poorly crafted agreement.
Editing Your Partnership Agreement Template
While a Florida partnership agreement template provides a valuable foundation, it is important to customize it to accurately reflect the nuances of your business and the unique relationships of its partners. This process requires careful consideration of your specific circumstances, extended beyond the terms of general commercial practice for the state of Florida or business priorities. While every partnership agreement will address similar topics, the manner in which they are addressed may differ greatly depending on the culture and goals of the business, any relevant nuances of the industry, and other factors. Not all Florida partnership agreement templates will use the same terminology, but there are some consistent elements they will generally include. For example, many items within the template can often be found in the following types of clauses: When crafting the original language for a section of the agreement, try to choose wording that describes the intention of the clause as plainly as possible. You also want to be clear about the conditions under which any policies put in place are enforceable. In some cases, a language consultant (such as an attorney) can help you craft precise, legal wording that will hold up in court. For clauses without a statutory answer, you can look to third-party sources for examples . However, even when relying on outside sources, it’s best to craft your own language rather than simply cutting and pasting into the document from the text you find online. In addition to the general clauses that can be found in many Florida partnership agreements, there are a few that you may want to add to a template. These items fall into two broad categories: those which increase protection of the business and those which create a greater level of transparency between partners. Examples of the latter might include: As with many other components of your Florida partnership agreement, customize the clauses you choose for your contract to the needs and priorities of your business structure and its partners. In some cases, it may be necessary to modify components that may seem fairly standard, such as those being legally required under Florida law. This can happen when, for example, the number of partners that make up your business does not meet the minimum requirements for such items. It can also occur when items are simply impractical or redundant for your type of business. Every partnership agreement template has its own nuances, but drafting the actual document from one of these templates often involves similar processes resulting in similar outcomes. It is important to use any available guidance, like that legally required by the state or offered by attorneys or other professionals, when drafting aspects of your document.
Common Pitfalls to Avoid
When reviewing agreements to form a business, and from experience from litigating these issues, I commonly see five mistakes that can make a Florida Partnership Agreement unenforceable, or at least not serve the true interests of the business. I will try to describe these errors from the businesses’ perspective, namely, avoiding these common mistakes can help you protect your assets, avoid litigation, and have a much more productive and stable business relationship with a partner.
The terms are scattered about the document. This probably goes without saying, but it is very common to have provisions that apply to certain controls of the business, such as voting and control over management, not be grouped together. It is important in a Florida Partnership Agreement to have the sections as organized and as detailed as possible. People often forget the provisions they included because they have to search through a very long and detailed document. This ultimately can lead to problems because you end up with a provision that has a completely different meaning than the parties intended. In addition, you do not want to forget to include provisions that you intended to place in the agreement making it unenforceable. It is better to have a short contract that covers everything necessary than to have multiple pages that do not follow the intentions of the parties.
Voting rights are not clear or just not reasonable. There are limits on how you can manage and control a partnership or business entity. Usually these voting rights are very limited since most businesses have day to day operations that will be handled by one individual. However, it is very common to see very broad voting rights that go beyond the purpose of managing the day to day business operations. In addition, when you have partners, you also need to have a majority of the owners maintain their voting strength. There are legal grounds for taking or limiting a partner’s voting rights. For instance, if the owner violates a provision of the agreement they can lose certain rights. For example, if a partner steals from the partnership, the partner would maintain his or her ownership interest but lose their ability to vote. This is an extreme case, however it is very common to take away all or part of the voting rights of a partner without good cause.
Not defining control. It is funny to see a page long section of a Florida Partnership Agreement talking about voting rights and the need for them to be unanimous and binding on the parties; however, nowhere in the agreement materializes the definition for controlling a Florida business. Control may not be the person that holds the majority interest in the partnership, corporation, or LLC. We have seen a provision that was in a part of the company’s agreement that recited that a partner that had a mere 1% interest held all control over the partnership. This is unreasonable on its face, however it is just as problematic when you do not define control because you may have individuals that hold a controlling interest when you did not mean for them to have that power.
Including unnecessary language. In my experience, the people who write these contracts have a very high regard for their drafting capabilities, and like to hear themselves write. Certainly there are times when you need to include a lengthy provision to protect yourself or to discover defects in property that you intend to buy for the business. However, a general rule of thumb when hiring an attorney to draft a document is to ensure that you have only what you need. Remember, a document that is poorly drafted will create uncertainty and arguments over issues that should be clear and easy to resolve. Those arguments will usually lead to possible business loss and litigation.
Leaving out legal requirements. Likewise, when drafting an agreement not having the legal requirements met can make the instrument not have any legal effect or give the parties the desired effect. An example is when there is no proper procedure to admit new partners into the business. The remedy for an improperly admitted partner may be to require them to dissolve their interest. It is better having a procedure that can easily be followed rather than having to litigate a partnership dispute that could have been easily avoided.
Final Thoughts: Safeguarding Your Business
As you can see, there are a myriad of issues which can be addressed in a Florida Partnership Agreement. In light of the size and complexity of some of these issues , the need for a lawyer experienced in partnership matters is essential. Far too many business owners spend little or no time at all thinking about the future of the company. Regardless of whether the cause is death, disability, or simply disagreement over management, even the healthiest of partnerships can suffer if it is not properly set up and documented.