Corporate Divorce & Dissolution

toates Business Law

What becomes of your corporation when its continuance is no longer feasible? Many think of such things only after that deadlock vote, or after a shareholder or member’s death or disability. After that unavoidable life event, death, disability, or disagreement, the question usually becomes what happens next? The answer depends on whether you have a shareholder agreement, or in the case of a limited liability company, an operating agreement.

Florida Law has few favorable remedies for those situations where a partnership is no longer feasible. In the case of 50/50 owners, without a majority equity holder, any decision which is not agreed upon by both parties will result in a “deadlock.” Without some provision in the shareholder agreement which directs the parties, there are few choices to end a deadlock vote. The only alternative when the parties cannot agree, is to look to the organizational documents to determine who has the deciding vote or whether dissolution and winding down the business is the only alternative. Florida law permits the judicial dissolution and winding up of a business in the event of deadlocked shareholders, but this alternative is not without drawback.

Aside from the cost of a judicial dissolution, such a remedy’s judicial termination means the end of the business. The better alternative is to prepare in advance for such an eventuality. Too often business owners are concerned with starting their business without the proper planning in place. A truism comes to mind; something is usually better than nothing. Even if the only planning done is to agree upon a majority stakeholder (i.e. a 51/49 partnership) you’ve still taken care of a large percentage of potential problems. But, what happens when a shareholder is disabled or has died. In the event of a shareholder death, shares of stock or membership interests are inherited by the next of kin regardless of their prior involvement.

Proper planning for the succession of the business or buy-sell arrangements are an essential part of running a business. Benjamin Franklin had it right; an ounce of prevention is better than a pound of cure. The attorneys at Oates & Oates can counsel you in the proper way to protect your business from the foils of lack of planning. We look forward to sharing with you our knowledge and experience in the before and after effects of business planning.