Operating, Shareholder & Partnership Agreements

What Happens If You Do Not Have a Written Agreement?

Many businesses begin informally. Founders trust each other. Family members assume alignment. Early investors rely on verbal understandings and handshake terms. But if a dispute arises and there is no written agreement in place, courts do not look to what the parties “intended.” They look to the governing statutes.

In the absence of a written agreement:

• Florida LLCs default to Chapter 605, Florida Statutes

• Florida corporations default to Chapter 607

• Florida partnerships default to Chapter 620

• Washington, D.C. entities default to Title 29 of the D.C. Code

These statutes supply “gap filler” rules that may:

• Divide profits equally regardless of capital contribution

• Grant equal voting rights in 50/50 structures

• Impose fiduciary duties broader than intended

• Permit judicial dissolution in the event of deadlock

• Restrict flexibility in modifying economic rights

Default rules are designed for general application—not for your specific ownership structure or risk tolerance. A properly drafted agreement allows owners to override many statutory defaults and define governance intentionally.

LLC Operating Agreements

An Operating Agreement is the primary internal document of a limited liability company. While it is not always required to be filed with the state, it governs how the company actually functions. In ownership disputes, it often becomes the most important document in determining control, financial rights, and exit options.

Governance & Decision-Making Authority

An effective Operating Agreement clearly defines whether the company is member-managed or manager-managed and allocates authority accordingly. It establishes voting thresholds for major decisions, including admission of new members, significant debt obligations, asset sales, amendments to governing documents, and mergers or conversions. Clearly defining authority reduces operational ambiguity and helps prevent internal conflict.

Capital Contributions & Economic Rights

Capital contributions, capital call procedures, profit allocations, and distribution mechanics should align with the parties’ actual investment structure. Without careful drafting, statutory default provisions may divide profits equally even when ownership percentages or contributions differ. A properly structured Operating Agreement ensures that financial rights align with investment structure and business strategy.

Transfer Restrictions & Buy-Sell Provisions

Ownership transitions are inevitable. A strong Operating Agreement anticipates change by incorporating transfer restrictions, right of first refusal provisions, buy-sell mechanisms, and defined valuation methodologies. These provisions protect against unwanted third-party ownership and reduce the likelihood of valuation disputes. When ownership transfer procedures are clearly defined, the business can continue operating even if relationships evolve.

Deadlock Prevention & Dispute Resolution

Closely held companies—particularly 50/50 structures—are vulnerable to operational deadlock. Strategic drafting may incorporate supermajority voting requirements, tie-breaking mechanisms, structured escalation procedures, or mediation and arbitration clauses where appropriate. These provisions help preserve business continuity and minimize the likelihood of court intervention.

Shareholder Agreements & Corporate Bylaws

Corporations operate through layered governance. Corporate Bylaws establish the internal procedural framework of the company—defining board authority, officer roles, meeting requirements, quorum standards, and voting mechanics. These rules ensure that corporate actions are legally valid and that the formalities necessary to preserve limited liability protection are observed.

Shareholder Agreements serve a different purpose. While bylaws govern how the corporation functions procedurally, Shareholder Agreements regulate the relationship between the owners themselves, including economic rights, ownership transfers, control protections, and exit planning. In closely held corporations, these agreements are often the most important document in preventing ownership disputes.

Founder Equity & Vesting Structures

In early-stage or closely held corporations, equity may be subject to vesting schedules or repurchase rights. Vesting ensures that ownership is earned over time and aligns long-term incentives among founders or key shareholders. If a founder departs prematurely, unvested shares may be subject to repurchase by the company. Careful drafting of vesting and repurchase provisions protects enterprise stability while preserving flexibility for growth.

Transfer Restrictions & Ownership Stability

Absent contractual restrictions, corporate shares are generally transferable. In closely held corporations, unrestricted transfers can introduce unwanted third parties into ownership or disrupt existing control dynamics. Shareholder Agreements commonly include:

• Rights of first refusal

• Consent requirements for share transfers

• Restrictions on transfers to competitors

• Drag-along and tag-along provisions

These mechanisms ensure that ownership changes occur in a controlled and predictable manner. Drag-along provisions protect majority shareholders in a full-company sale, while tag-along rights protect minority shareholders from being left behind in a control transaction.

Buy-Sell Provisions & Exit Planning

Ownership transitions are inevitable. A properly drafted Shareholder Agreement defines what happens upon death, disability, termination of employment, voluntary withdrawal, bankruptcy, divorce proceedings, or attempted third-party sales. Buy-sell provisions typically address:

• Triggering events

• Valuation methodology (fixed price, formula, or appraisal)

• Payment structure

• Funding mechanisms, including insurance-backed buyouts

Structured exit planning reduces uncertainty and helps prevent forced litigation or judicial intervention during sensitive transitions.

Partnership Agreements (Including Accidental Partnerships)

Most modern businesses choose to operate as LLCs or corporations for liability protection and governance flexibility. However, under both Florida law (Chapter 620, Florida Statutes) and Washington, D.C. law (Title 29 of the D.C. Code), a general partnership can arise automatically when two or more individuals carry on a business for profit as co-owners—even if no formal entity was created.

In that situation, each partner may be jointly and severally liable for business obligations and for actions taken by other partners within the scope of the business. Many founders are surprised to learn that by simply operating together and sharing profits, they may already be in a legally recognized partnership.

When appropriate, we advise clients on formalizing the relationship through a written Partnership Agreement or restructuring into an LLC or corporation to provide limited liability protection. Where a partnership structure is intentional, careful drafting is essential to define authority, economic rights, and exit procedures clearly.

Management Authority & Fiduciary Duties

Partnership statutes typically grant partners equal management authority unless otherwise agreed. They also impose fiduciary duties of loyalty and care that may be broader than the parties expect. A properly drafted Partnership Agreement clarifies decision-making authority, voting requirements, and the scope of fiduciary obligations within statutory limits. Without defined governance terms, disagreements over control can quickly disrupt operations.

Profit Allocation & Capital Contributions

In the absence of an agreement, profits and losses may be divided equally regardless of unequal capital contributions. A structured Partnership Agreement defines capital contribution requirements, profit-sharing ratios, reimbursement policies, and procedures for additional funding. Clear economic drafting ensures that financial outcomes align with actual investment expectations.

Withdrawal, Dissolution & Continuity

Partnerships can be particularly vulnerable to instability when a partner withdraws, becomes disabled, or disputes arise. A well-drafted agreement defines withdrawal rights, buyout procedures, valuation methods, and dissolution triggers. It may also include restrictive covenants to protect the business from competitive harm. These provisions help ensure that the departure of one partner does not automatically terminate the enterprise or force liquidation.

Buy-Sell Planning & Ownership Transitions

Regardless of entity type, every multi-owner business will eventually face an ownership transition. The question is not whether change will occur, but whether it will be structured or disruptive.

Buy-sell provisions establish clear rules for what happens when an owner dies, becomes disabled, leaves the business, files for bankruptcy, divorces, or attempts to sell to a third party. Without defined exit mechanisms, transitions can create valuation disputes, control conflicts, or operational instability at precisely the moment the business needs continuity.

Triggering Events & Mandatory Buyouts

A well-drafted buy-sell framework identifies specific triggering events and defines whether the remaining owners—or the company itself—have the right or obligation to purchase the departing owner’s interest. These provisions reduce uncertainty and prevent ownership interests from transferring unpredictably during sensitive life events.

Valuation Methodologies

One of the most common sources of internal litigation is disagreement over valuation. Buy-sell provisions may incorporate predetermined valuation formulas, appraisal procedures, fixed-price mechanisms, or blended methodologies. Establishing the valuation framework in advance reduces the risk of prolonged disputes when emotions and financial stakes are high.

Payment Structure & Funding Mechanisms

Exit provisions also define how a buyout will be funded and over what timeline payment will occur. Agreements may include installment payments, secured notes, insurance-backed funding for death or disability events, or other structured financing mechanisms. Clear drafting protects both the departing owner and the remaining business.

Deadlock & Judicial Dissolution Risk

Ownership disputes do not always arise from bad faith. Many closely held businesses, particularly 50/50 ownership structures, simply lack a clear mechanism for breaking ties when disagreements occur. Without structured decision-making provisions, operational paralysis can follow.

Under both Florida and Washington, D.C. law, courts may intervene in cases of persistent deadlock, shareholder oppression, or mismanagement. In certain circumstances, judicial dissolution may be sought, placing the future of the company in the hands of the court.

Strategic drafting reduces this risk. By incorporating supermajority voting thresholds, tie-breaking mechanisms, structured escalation procedures, or defined dispute resolution frameworks, governance documents can provide a roadmap for resolving disagreements internally rather than through litigation.

The goal is not to anticipate conflict—but to ensure that if conflict arises, the business remains protected.

Forming a Business With a Partner?

Ownership issues usually start with unclear expectations—not bad intentions. We draft governance agreements that define authority, financial rights, and exit terms so your business can operate smoothly through growth and change.