Have you ever contemplated going into business with a colleague? Maybe it’s someone with whom you’ve had a great experience on a previous project. It all sounds great in theory and you’re ready to move ahead. You may want to pump the brakes and review this blog before contracts are executed and funds are exchanged.
What would happen if you or your business partner were accused of mishandling funds or misrepresenting the details of a transaction? Our office has been on both sides of the aisle for this dilemma. We recently represented clients who were swindled out of funds entrusted to people who were working together (call it conspiring together), but did not necessarily own a company together. Ultimately, it was a convoluted business scheme which left our clients out of pocket in excess of six figures and the defendants pointing the finger at one another. Fortunately, we were able to obtain a seven-figure judgment against the culprits, who ended up jointly and severally liable for the judgment. The problem, of course, is in collecting on the that judgment.
Now, the more important question: how do you avoid such a devastating outcome, but still do business with a colleague?
First, evaluate the extent of your relationship with your business partner. Is this a one-time transaction or an ongoing business venture? Are there any documents evidencing your characterization of the business relationship? Although you may only intend to collaborate with your partner(s) for a specific business venture, as opposed to starting a corporation, your relationship could nonetheless, be deemed a partnership.
Florida will consider an association of two or more persons carrying on as a co-owners of a for profit business as a partnership.1As such, you could be held jointly and severally liable for all obligations of the partnership, unless otherwise agreed or provided by law.2Therefore, as a legally recognized partnership, anything your business partner does in his or her capacity as your business partner, could leave you to be held equally liable for any and all claims relating to such activity. It is highly important that the terms of the business relationship be memorialized in writing.
Next, take all the preventive measures that you can. Be open and transparent with your potential colleagues and counterparts regarding the terms of every transaction. Although unintentional, even the slightest misrepresentation of a material term could be materially damaging. Negligent misrepresentation is defined as a misrepresentation of a material fact which the party should have known was false, made to induce another to rely on their representations, on which the other party did, in fact, rely to their detriment.3
Have you disclosed all material terms to your colleague(s)? Keep accurate records of all your communications to and from the colleagues. Maintain even more precise accounting records regarding the transaction. Be patient and ensure your colleagues understands the nature of the transaction at the onset to avoid later issues because of a lack of clarity.
If you are already reacting to accusations regarding ongoing business dealings with a business partner, cooperate with the harmed party to rectify the situation prior to the commencement of any litigation. Communicate with your business partner regarding the accusations and expectations of all interested parties. If the harmed party nonetheless pursues litigation, seek legal counsel immediately, and cease all further communications, even to your partner until you’ve had an opportunity to speak with someone advocating specifically on your behalf.
If you or someone you know has been accused of mishandling funds or have questions regarding your business partner(s) and corporate structure, we always provide a free consultation so that you may better understand your legal options.
1Fla. Stat. 620.8101(7) (2018).
2Fla. Stat. 620.1404 (2018).
3Simon v. Celebration Co., 883 So. 2d 826, 832 (Fla. 5th DCA 2004).