Business Agreements in Florida
When parties are anxious to make a deal, paperwork can seem like a needless obstacle and delay before the finish line. Still, ensuring that your business operates with valid legal agreements is paramount for its success, both in the best case scenarios and especially if things go awry.
It is best practice to have your agreements in writing; although oral agreements can be upheld in court, a written agreement is more likely to be enforced with a breach of contract claim. There are certain types of contracts, including those for the sale of land and contracts that cannot be performed within one year, that must be memorialized in a signed writing to be valid.
Below are some useful considerations to help confirm that your contracts are valid, enforceable, and appropriate for the type of business you are conducting.
The Necessary Elements of a Contract in Florida
- Mutual Consent, Offer and Acceptance: To form an enforceable contract, both parties must enter into an agreement through their own free will with the mutual intent to be bound by the agreement’s terms. A contract must include a specific offer and an acceptance of that specific offer.
- Consideration: To form a valid contract, the parties must exchange valuable “consideration.” Consideration can be money, services, covenants, forbearance of rights, and other things of value. A contract will not be valid if there is no consideration, or if its consideration is illegal (for example, exchanging drugs or involving the commission of a crime). If only one party gives valuable consideration, the arrangement is a gift, not a contract. Since a gift does not create a contract, there is no legal remedy for a party who believes they have entitlement to a gift. For example, if parties agree to exchange an orange for one dollar, they have exchanged valuable consideration because each party gave and received value. However, if one party simply offered another an orange in exchange for nothing, the party seeking the orange has no legal right to the orange because the offer does not create a binding contract.
- Competence/Capacity: Each party must be of “sound mind” to understand the elements of the contract, otherwise the court may not enforce it. Courts hold that minors, individuals under the influence of drugs or alcohol, and those with mental disabilities are unable to “competently” enter into contracts.
Types Of Business Agreements
Operating Agreements and Partnership Agreements
Depending on your business’s structure, you will either have an operating agreement (for an LLC or Corporation) or a partnership agreement (for an LLP, LP, or Partnership). This agreement is the most important document between the owners of a business. Florida courts defer to, and are very shy to veer from, the terms of such agreements. Operating and partnership agreements identify the individuals with pivotal roles within the company (ex. Chief Executive Officer, President, etc.). Further, they will identify the voting power of those in the company and decision-making power of the officers. Ultimately, because Florida courts rely heavily on these agreements in a dissolution, it is important to a) ensure your company has a written operating or partnership agreement and b) carefully draft the operating or partnership agreement with current and future considerations in mind.
Shareholder Agreements
A shareholder agreement outlines and defines the distribution and nature of the shares in a company. For example, the agreement will provide definitions of distinct types of shares in a company and whether some shares give the shareholder broader rights (preferred shares) than others (common stock). Preferred shares can grant shareholders more voting power and entitlement to profits or dividends.
Sales Agreements
- Bill of Sale. A bill of sale serves two functions. First, the bill of sale transfers ownership of property. Also, the bill of sale acts as evidence of the contract between the buyer and the seller.
- Purchase Order. A purchase order is different from a bill of sale in that it binds the buyer to purchase a good, or quantity of goods, at a certain price point. Further, the purchase order specifies payment terms and the delivery date.
- Security Agreement. A security agreement guarantees an asset as collateral to secure credit. If the debtor defaults on the loan, the debtor surrenders the asset to the creditor.
Service Agreements
Service agreements are common in transactions where one party provides a service to another for money. The service agreement usually has two parts: the terms and conditions, and the scope of work. The terms and conditions outline special considerations and obligations of the parties, for example: intellectual property ownership, non-disclosure, non-solicitation, indemnification, choice of law, etc. The statement of work may outline payment obligations, the timeline for payment, the type of services provided, the timeframe to render the services, etc.
Employment Agreements
It is important to carefully document the employment terms of company employees. Employers should always specifically define the following aspects of the employment relationship: compensation structure, benefits, duration of employment, grounds for termination, and roles and responsibilities. Having specifically defined grounds for termination will help your business avoid suit.
Indemnification Agreements
Indemnification agreements are in many types of business agreements. These provisions are agreements between the parties (or from one party to another) to hold the other party harmless in case damages occur as a result of one party’s performance, or nonperformance of the agreement. Indemnification provisions are invaluable because they protect parties from suits which may arise in connection with the agreement, and not a particular party’s fault. Oftentimes, parties can even agree to indemnify one another for any attorneys’ fees which are associated with the one party enforcing the contract.
Conclusion
If you are looking for legal assistance with your internal or external business agreements, or if you would like to speak with an experienced Florida business lawyer, contact us.
Romano Law can provide guidance on business agreements in New York, California and Florida.