FORT LAUDERDALE BUSINESS LITIGATION: SHAREHOLDERS SHOULD ALWAYS OBTAIN A WRITTEN AGREEMENT STATING THEIR OWNERSHIP SHARE IN THE COMPANY TO AVOID DISPUTE

A common business dispute involves two business partners who disagree about the ownership split of the business. This dispute often arises from poor documentation, which can lead to protracted and expensive litigation. Ownership rights often turn on simple contract principles like offer, acceptance, and consideration. Jacob v. Bernatek, 764 So. 2d 874 (Fla. 4th DCA 2000) (“Jacob accepted the offer and became shareholder… paying approximately $100,000 into the company.”). But do not be fooled. These basic concepts can have far reaching effects on one’s ownership rights. The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

In Acoustic Innovations, Inc. v. Schafer, 976 So. 2d 1139 (Fla. 4th DCA 2008) the two shareholders initially failed to adequately document their ownership distribution at all and then created multiple documents concerning their ownership split that sowed more ambiguity into their ownership status. The incorporator incorporated the business and issued a document identifying himself as the sole incorporator, president, and shareholder of the business. At the same time, the incorporating partner entered an oral agreement with an employee whereby each agreed they owned 50% of the business. Several years later, the employee requested that the incorporating partner transfer 50% of the shares to him. The transfer never occurred and the two subsequently signed a letter in which both agreed the employee would be entitled to one-third of the consideration of any share in the business. A year later, the incorporating partner terminated the employee. The employee filed sued the incorporating partner to obtain his 50% ownership interest in the company. The case went to trial and the judge determined the employee owned half the company and the letter agreement was void because it lacked consideration.

Because contract principles apply to determine one’s ownership interest in a company, contract defenses apply too. Acoustic Innovations, Inc. is instructive on some of the potential defenses that can be asserted to thwart a claim for ownership interest and the types of arguments that may arise concerning those defenses. The incorporator in Acoustic Innovations, Inc. raised the statute of frauds defense, which requires contracts not capable of performance within one year to be reduced to writing. The incorporator argued the employees claim for 50% ownership was based on an oral contract that could not have been performed within one year. The court disagreed because incorporator could have transferred the stock to the employee immediately after forming the oral agreement. The incorporator also argued the four-year statute of limitations for oral contracts prohibited the employee’s ownership claim because the statute began running when the employee demanded transference of shares and the lawsuit was filed more than four years after that demand. The court again rejected the incorporator’s defense because the incorporator was estopped from claiming a statute of limitations defense. The incorporator repeatedly assured the employee he would honor the parties’ agreement thereby causing the employee to delay the filing his lawsuit.

The legal and procedural maneuverings discussed above simply by reducing the parties’ agreement to a clear single document. Though we will never know whether the incorporator intentionally tried to deprive the employee of his equity by promising one thing and doing another, the employee and others in the employee’s shoes would do well the ensure their agreement is reduced to writing at the outset.

The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.