Responsible lawyer: Eduardo A. Maura, Ayala Law PA. Office: 1646 W Snow Ave, Tampa, Florida.
When a business partner stops paying distributions in Florida, start with the documents that set the rules. Then request the company’s records and write down every step. This guide explains what to check first and when a lawsuit may become necessary.
What a Distribution Is and Why Payments Stop
A distribution is a payment of company profit to an owner, made because that owner holds a share of the business. A salary is different. It pays someone for work they do. An owner has no automatic right to an interim payment. The company has to decide to make one. Corporations follow limits too. No distribution from a corporation may be made if, after giving it effect, the corporation would not be able to pay its debts as they become due in the usual course of its activities and affairs, or its total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount needed to satisfy superior preferential rights upon dissolution. Payments often stop for common reasons. The company may say cash is tight, profits may be reinvested, or the majority owner may control the bank accounts.
If a co-owner is holding back your share of profits while controlling the company accounts, you may have a claim worth reviewing. Our team can look at your documents with you. Talk it through with our team — we can walk you through how a situation like yours is usually handled and what your options are.
Check Your Governing Documents First
The operating agreement, shareholder agreement, or partnership agreement is the first place to look. Fla. Stat. § 605.0105 Where the agreement is silent, the chapter’s default rules apply. Read for three things. Find out whether distributions are required or left to management. Check how votes are counted. Look for the written notice the company must give to all members other than the petitioning member within 10 days after a purchase election is filed. Some agreements tie distributions to tax payments. Florida’s Division of Corporations publishes general information about business entity structures. How that plays out in a partnership with no written agreement depends on the facts. Courts also limit the implied duty of good faith. It cannot contradict express contract terms, as the QBE v. Chalfonte opinion explains.
Demand Access to the Company’s Records
Owners usually have a right to inspect company records, and the rules depend on the entity type. Florida’s limited liability company statute, Chapter 605, addresses when a member of a member-managed LLC may inspect and copy company records. Fla. Stat. § 607.1602 A shareholder who wants to inspect records must give the corporation written notice of the demand at least 5 business days before the date on which the shareholder wishes to inspect and copy. For the records described in subsection (2), a shareholder may inspect and copy them only if the demand is made in good faith and for a proper purpose, and describes the records with reasonable particularity. Shareholders may inspect and copy certain corporate records, including financial statements and accounting records, during regular business hours at a reasonable location specified by the corporation, if the shareholder meets the good-faith and proper-purpose requirements. Put every request in writing.
Look for Pay That Is Going to the Co-Owner
A co-owner who still gets paid may be taking value in other ways. Common forms include salary, bonuses, expense reimbursements, rent paid to a related entity, and loans to themselves. Compare every payment to that person against the distributions you did not receive. Put the numbers in two columns and look for patterns. A steady stream of insider payments can support claims beyond an unpaid distribution. A member may bring a direct action, but must plead and prove an injury not solely suffered by the company. The member can also show a breach of a separate duty owed to the member. Check the written agreement first. An express contract on the same subject can bar an unjust enrichment claim, as the Williams v. Johnson opinion explains.
Options Before You Go to Court
A written demand and a negotiated exit often come before any lawsuit. A demand letter should name the agreement provision, state the amount withheld, and say what response you want by a set date. Negotiated paths include a distribution schedule, a buyout, or a structured exit. Get any settlement in writing and signed by every party. Some agreements require mediation or arbitration first, so check for that clause. Florida law makes written arbitration agreements valid and enforceable, except on grounds that exist for revoking a contract. A court decides whether an arbitration agreement exists. Fla. Stat. § 682.03 provides that if the court orders arbitration, the court on just terms shall stay any judicial proceeding that involves a claim subject to the arbitration.
When Litigation Becomes Necessary
Litigation usually becomes necessary when a co-owner ignores demands, keeps paying themselves, or breaks the written agreement. Possible claims include breach of the operating or shareholder agreement and a demand for an accounting. Under Florida law, a circuit court may dissolve an LLC in a member’s proceeding. That can happen when those in control act illegally or fraudulently. It can also happen when managers or members are deadlocked in management, the members are unable to break the deadlock, and irreparable injury to the company is threatened or being suffered. Fla. Stat. § 47.011 Actions must be brought only in the county where the defendant resides, where the cause of action accrued, or where the property in litigation is located. This rule does not apply to actions against nonresidents. For Hillsborough County disputes, a suit may be filed there if the defendant resides there, the cause of action accrued there, or the property in litigation is located there. No one can predict how long a case will take or how it will end.
Not sure what your next step is?
Talk it through with our team — we can walk you through how a situation like yours is usually handled and what your options are.
Can You Force a Partner Out, or Leave Yourself?
A co-owner generally cannot be forced out without the agreement or a court order. The agreement may include a buyout path or a deadlock sale provision. If a deadlock sale provision is started in time, it can resolve the deadlock before a court orders dissolution. Fla. Stat. § 605.0706 In a proceeding started by a member of a limited liability company under s. 605.0702(1)(b), the company may elect to purchase the petitioner’s entire interest at its fair value; if the company fails to elect, one or more other members may make that election. That election generally must be filed within 90 days after the petition. Fla. Stat. § 605.0801 Subject to subsection (2), a member may maintain a direct action against another member, a manager, or the limited liability company to enforce the member’s rights, but must plead and prove a qualifying actual or threatened injury. A person may dissociate as a member at any time, rightfully or wrongfully; a dissociation does not entitle the person to a distribution (see Fla. Stat. § 605.0404(2)). Check how the agreement values and pays out an interest, because the valuation method drives the buyout.
Protecting Your Position While You Decide
Keep your own records while you decide. Save proof of your capital contributions, the work you did, and every message about money. An LLC must keep a record of each member’s contributions, unless the operating agreement holds that record. Avoid self-help. Taking company funds or locking a co-owner out on your own can hurt your position. Review the shareholder or operating agreement before a dispute starts, since it sets your options.
Ayala Law PA focuses on business litigation, including shareholder and partnership disputes. We represent business owners in Tampa and Hillsborough County from our Tampa office. If your distributions have stopped, contact our office or call (305) 570-2208. Bring your agreement and bank records so we can talk through your options.
Frequently Asked Questions
Can a business partner stop paying distributions in Florida?
In an LLC, a member has no automatic right to an interim distribution. The company must decide to make one.
Can I inspect my LLC’s bank records in Florida?
Can I sue my business partner for withholding distributions?
A claim may be possible when the written agreement gives you that right. Each claim turns on its own documents and facts.
