What Can I Do in Florida?
You discover unexplained transfers from the company’s bank account. Your business partner has been charging personal expenses to the company credit card. Payments are being made to another business your partner owns. Distributions no longer match the ownership percentages. The accounting records do not make sense, and when you ask for backup, your partner refuses to provide it.
The immediate reaction may be: “My business partner is stealing from the company.”
That conclusion should not be made too quickly. Not every disputed payment is theft. A payment may be authorized compensation, reimbursement, a distribution, repayment of a legitimate loan, or a transaction permitted by the operating agreement.
But when substantial company money is being diverted without authority or explanation, a Florida business owner should take the problem seriously.
The first steps are usually to determine what authority the other owner actually has, obtain the financial records, preserve evidence, and avoid impulsive self-help that could create additional legal claims.
First Determine What the Payment Actually Was
Business owners frequently use the word “stealing” to describe several very different situations.
For example, an owner might:
- increase his or her salary;
- take a distribution;
- reimburse personal expenses;
- use company money to pay a personal obligation;
- transfer money to a related company;
- make an undocumented “loan” to himself or herself;
- divert company revenue into another account;
- move a customer to a separate business;
- use company property personally; or
- take an opportunity that belonged to the company.
Those acts do not all have the same legal consequences.
The operating agreement, shareholder’s agreement, management structure, ownership percentages, historical practices, accounting records, and Florida law all matter.
Before accusing another owner of theft or fraud, determine what happened and whether the payment was actually unauthorized.
Start With the Operating Agreement
For a Florida limited liability company, the operating agreement may answer many of the first questions.
It may govern:
- who manages the company;
- who can sign checks;
- who can borrow money;
- compensation;
- distributions;
- reimbursement;
- related-party transactions;
- voting rights;
- access to records;
- transfers of ownership;
- member duties;
- dispute resolution; and
- buyout rights.
Florida LLCs are member-managed by default unless the operating agreement or articles provide for manager management, often preferrable, in the manner required by the statute. Fla. Stat. § 605.0407.
That distinction is important.
A person who owns 50 percent of an LLC is not necessarily authorized to make every management decision simply because he or she owns half of the company. Likewise, an owner who does not manage day-to-day operations does not necessarily lose his or her ownership or information rights. A Manager however, can make financial decisions for the company similar to the President of a corporation.
Does a Florida LLC Member Have a Right to See the Books?
Often, yes, but the specific statutory requirements depend partly on whether the company is member-managed or manager-managed.
Section 605.0410, Florida Statutes, requires a Florida LLC to maintain specified records. Those records include, among other things, the current operating agreement and amendments, organizational documents, tax returns for the three most recent years, and financial statements for the three most recent years if they exist.
In a member-managed LLC, members have broad statutory rights to inspect specified company records and, under the circumstances described by the statute, other information concerning the company’s activities, affairs, and financial condition.
Manager-managed companies are treated differently. A member seeking broader records from a manager-managed company may need to state a purpose reasonably related to the member’s ownership interest and describe the information sought and the purpose with sufficient particularity.
This distinction matters in actual litigation.
In Haratz v. Dental Team of Atlantis, LLC, 373 So. 3d 1280 (Fla. 4th DCA 2023), the dispute involved a member’s request for company financial records and whether the demand satisfied the requirements applicable to a manager-managed LLC. The case illustrates why a records demand should be drafted to comply with the company’s actual management structure rather than assuming all LLC members have identical inspection procedures.
What If My Partner Refuses to Produce the Records?
Florida law provides a mechanism for court-ordered inspection.
Section 605.0411 allows a circuit court, under qualifying circumstances, to order an LLC to permit inspection and copying of records when the requesting member or other authorized person has complied with section 605.0410.
Importantly, if the court orders inspection, section 605.0411 generally directs the court to require the LLC to pay the reasonable costs and attorney’s fees incurred in obtaining the order unless the company establishes the statutory good-faith exception. The court may also impose reasonable restrictions on use or distribution of the records.
This can make a properly prepared records demand an important early step in an ownership dispute.
A demand should not simply say:
“Give me everything.”
It should identify the categories of information needed and, where the statute requires it, explain the ownership-related purpose for the request.
Does My Business Partner Owe Fiduciary Duties?
Sometimes, and the company’s management structure matters.
Section 605.04091 provides that a manager of a manager-managed Florida LLC and a member of a member-managed LLC owes duties of loyalty and care to the company and its members.
The statutory duty of loyalty includes obligations relating to company property, profits, benefits derived from company activities, company opportunities, adverse transactions, and competition with the company. The statute also imposes an obligation of good faith and fair dealing in exercising rights and performing obligations under Chapter 605 and the operating agreement.
This does not mean that every disagreement over money is automatically a breach of fiduciary duty.
Florida law expressly recognizes that a member or manager does not violate a duty merely because conduct furthers that person’s own interest.
The inquiry is more specific: What did the person do, what authority did that person have, whose money or opportunity was involved, and did the conduct violate the operating agreement or applicable statutory duties?
Examples of Conduct That May Require Legal Investigation
Consider several common scenarios.
Personal Expenses Paid by the Company
A company credit card is repeatedly used to pay personal travel, home expenses, entertainment, or personal purchases.
The critical questions include whether those amounts were authorized compensation, distributions, reimbursements, or undocumented personal benefits.
Payments to a Related Business
One member causes the company to pay another entity the member owns.
That does not necessarily make the transaction unlawful. But the transaction may warrant scrutiny concerning authorization, fairness, conflict of interest, and whether the company received appropriate value.
Company Revenue Redirected Elsewhere
A partner instructs customers to pay a new entity rather than the company.
This can raise substantially more serious concerns, particularly where the customer relationship or revenue opportunity belongs to the existing business.
Excessive Compensation
An owner controlling management substantially increases his or her own compensation while stopping distributions to the other owners.
Whether that is permissible may depend on the operating agreement, voting authority, prior practices, company economics, and the reasons for the compensation.
Hidden Distributions
One owner takes distributions not provided to the others.
This may involve the operating agreement as well as Florida’s statutory rules governing distributions and management.
Each fact pattern requires analysis. The strongest claim is not necessarily the one with the most dramatic label.
What Claims May Be Available?
Depending upon the facts, an ownership dispute involving diverted company funds can implicate several legal theories.
Potential claims may include:
- breach of the operating agreement;
- breach of statutory or fiduciary duties;
- conversion;
- fraud;
- unjust enrichment;
- an accounting;
- declaratory relief;
- direct claims by an owner; and
- derivative claims brought on behalf of the company.
Not every claim belongs to the individual owner.
If the money was taken from the company, the company itself may be the party that suffered the direct injury. Florida’s LLC statute separately recognizes direct and derivative actions, and correctly identifying who owns the claim can become important.
This is another reason to avoid filing a lawsuit based solely on the intuitive conclusion that “my partner stole my money.” The legal injury may have occurred primarily to the company.
Can I Freeze the Bank Account or Lock My Partner Out?
This is an area where business owners can make a bad situation worse very quickly.
Suppose two members each own 50 percent of an LLC.
One discovers questionable withdrawals and immediately:
- changes the online banking password;
- removes the other owner’s access;
- changes the office locks;
- directs employees to ignore the other owner;
- transfers company money to a new account; or
- shuts down the company email account.
Some emergency action may ultimately be justified, but ownership does not necessarily equal unilateral authority.
Before taking control of business assets, determine who has authority under the operating agreement, resolutions, bank documents, and Florida law.
A court may view unauthorized self-help by either side as part of the dispute.
Can a Court Stop the Money From Disappearing?
Potentially.
Where continuing conduct threatens irreparable harm and the legal requirements are satisfied, preliminary injunctive relief may be available.
But obtaining an injunction requires more than proving that the other side behaved badly.
The moving party must satisfy the legal requirements applicable to the requested relief, and the evidence often must be assembled quickly.
If the concern involves ongoing transfers, diversion of customers, destruction of records, or movement of a particular asset, useful evidence might include:
- current bank records;
- transaction histories;
- emails;
- texts;
- screenshots;
- accounting-system activity;
- wire confirmations;
- customer communications;
- access logs; and
- affidavits from witnesses.
Emergency litigation is substantially easier when the evidence has been preserved before systems, passwords, or records change.
What Financial Evidence Should Be Preserved?
In a business-partner money dispute, financial evidence is often more important than accusations.
Consider preserving:
- bank statements;
- canceled checks;
- wire records;
- ACH transactions;
- company credit-card statements;
- QuickBooks or other accounting exports;
- general ledgers;
- payroll records;
- owner distributions;
- expense reports;
- tax returns (they are key disclosures, especially of ownership percentages, to the IRS);
- financial statements;
- invoices;
- customer payment records;
- loan documents;
- reimbursement records;
- related-party payments; and
- payment-platform histories.
Accounting data should ideally be preserved in a form that retains transaction detail rather than merely printing summary reports.
Where appropriate, a forensic accountant may later analyze the company’s cash flow, related-party transactions, compensation, owner distributions, and changes over time.
Should I Confront My Business Partner First?
Sometimes. But not always immediately.
A direct conversation may resolve a legitimate misunderstanding.
On the other hand, confronting someone before preserving records may provide an opportunity to:
- delete messages;
- alter accounting entries;
- move funds;
- remove documents;
- contact customers;
- change passwords; or
- create after-the-fact explanations.
The correct sequence depends on the seriousness of the suspected conduct.
This is why evidence preservation often comes before confrontation in significant disputes.
Can I Force My Partner Out of the Company?
Not necessarily.
Removing someone’s management authority, terminating employment, and eliminating ownership are legally different actions.
A business partner cannot ordinarily be stripped of an ownership interest simply because the relationship has deteriorated. You can’t fire an owner.
Potential solutions may include:
- a negotiated buyout;
- enforcement of an operating-agreement buyout provision;
- dissociation where legally available;
- restructuring management;
- litigation over misconduct;
- judicial dissolution; or
- an election to purchase in circumstances governed by Florida’s LLC statute.
The correct remedy depends on the governing documents and facts.
A profitable company should not be destroyed simply because its owners no longer trust one another. In many disputes, preserving the enterprise while separating the owners is economically preferable to ending the business.
What Should a Business Owner Avoid Doing?
When money is missing, restraint can be strategically important.
Before obtaining advice, consider avoiding impulsive actions such as:
- deleting the other owner’s access without authority;
- emptying company accounts;
- transferring assets personally;
- destroying or removing company records;
- accessing private email or personal accounts without authorization;
- secretly changing ownership percentages;
- making public accusations of criminal conduct;
- contacting customers with unsupported allegations; or
- signing retroactive company documents.
A legitimate claim can become substantially more complicated when both sides begin taking unilateral action.
What Should You Do If Company Money Is Disappearing?
The first objective is to establish facts.
Determine:
- what money was transferred;
- who authorized the transfer;
- how the transaction was recorded;
- what the operating agreement permits;
- what voting or management authority exists;
- whether company records are accessible;
- whether the activity is continuing;
- whether customers or assets are also being diverted; and
- whether immediate court intervention may be necessary.
The answer may ultimately be litigation.
It may instead be a records demand, forensic accounting, negotiated buyout, mediation, restructuring, or another remedy.
But in a serious ownership dispute, waiting until the money is gone and the records are unavailable can make the problem considerably harder to solve.
If substantial company funds are being diverted, financial records are being withheld, or another owner appears to be using company assets for unauthorized purposes, the sequence of events matters. Preserving available financial evidence and understanding the operating agreement before changing accounts, confronting the other owner, or taking unilateral company action can materially affect the options available.