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Florida Business Law: Resolving Deadlocked Disputes

BusLaw

Business disputes are a reality that all shareholders must acknowledge. Eventually, even the closest of business partners will disagree about some aspect of the company. When forming a business, it is imperative that partners and shareholders create a proper structure to resolve any potential disputes efficiently, without risking any long-term damage to the underlying company.

More specifically, business owners and shareholders should set up a process that addresses how ‘deadlocks’ will be resolved. This is particularly important if you are a shareholder in a ‘closely held corporation’, as inherent features in these types of businesses make damaging deadlocks a far more serious threat. Here, our West Palm Beach commercial law attorneys discuss business deadlocks and some strategies for creating the right structure to resolve deadlocked disputes.

The Anatomy of a Deadlock

In the business context, the term deadlock refers to an internal impasse that has no clear resolution.

A deadlock could occur because the votes on an issue are tied (potentially a big problem when there are only two voting shareholders) or when a unanimous vote is required by the corporate bylaws, but unanimity simply cannot be achieved. Business deadlocks generally fit into one of two categories:

  • The shareholders are unable to elect corporate officers; or
  • The shareholders are unable to make a management decision.

Regardless of the specific issue in question, deadlocks that cannot be resolved can cause tremendous problems for an LLC. Not only will deadlocks slow down business operations, sometimes even grinding them to a halt, but they can even lead to lengthy, drawn out litigation that can destroy the company.

You Need a Strong Operating Agreement

If you are starting an LLC, or are buying into one as a shareholder, you need to have a deep understanding of your company’s operating agreement. Indeed, the operating agreement is the very core of your business, and perhaps more importantly, your business interests. A well crafted operating agreement is the key to ensuring that a business is able to navigate its way out of a deadlock without causing long-term damage. If you are a shareholder of a closely held corporation in Florida, you need to be sure that your company’s operating agreement creates a path for deadlocks to be resolved. Depending on the specific circumstances of your company, you should consider including some of the following provisions:

  • Shareholder voting rights provisions that delineate ultimate authority on certain day-to-day operational decisions ahead of time;
  • Buy-sell agreements that provide minority shareholders with a clear way to exit the business should an unresolvable disagreement occur;
  • Shotgun provisions that mandate an immediate sale of the business should an unresolvable deadlock occur (most useful for companies with two shareholders); and
  • Other business dissolution provisions that are customized to meet the needs of the shareholders of the company.

Contact Our Team Today

At Pike & Lustig, LLP, our team has extensive experience handling internal business disputes. To learn more about what we can do for you, please contact us today to set up a free review of your case. From our offices in Miami and West Palm Beach, we service businesses and shareholders throughout the region, including in Hialeah, Homestead, Doral and Aventura.

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