A party asserting that an unwritten, implied contract is the basis of a joint venture faces a heavy and difficult burden, as it must allege and prove that the implied contract contains the same five elements required of a joint venture based on a written contract.

If these five elements exist, joint venturers owe each other a duty of loyalty, breach of which gives rise to a claim for breach of fiduciary duty.

The above information is being provided for educational purposes. It is not designed to be complete in all material respects. If you have any questions concerning the contents of this post, please contact a qualified professional.

Contact Us:
With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Florida Minority Shareholder Election Statute:

607.1436 Election to purchase instead of dissolution.

Fla Stat. § 607.1436 gives the court charged with valuing shares in a corporation discretion to determine the most appropriate valuation method by which to arrive at “fair value.” A trial court’s selection of one valuation method over another does not require reversal. The valuation process is fact specific with an emphasis on the particular circumstances of the case. The factors to be considered in determining ‘fair value’ are market value, investment value, and net asset value, and the weight to be accorded each factor depends upon the circumstances of the particular case.

A. Consideration of Fair Market Value:

Florida courts have explained that determination of “fair value” for the purposes of the election statute rests on determining what a willing purchaser in an arm’s length transaction would offer for an interest in the subject business. This is not to say that “fair value” is synonymous with “fair market value.” Most courts have rejected the notion of such synonymity. However, the terms are not mutually exclusive. On one hand, as Florida courts have explained, where “fair market value” would take into account appreciation or depreciation in anticipation of corporate action such as a merger or acquisition, the valuation process under § 607.1436 must exclude both positive and negative effects of any such impending transaction. On the other hand, a court may use fair market value as an estimate of “fair value” when such potentially distorting corporate actions are not at issue.

Accordingly, Florida courts have recognized that valuation proceedings necessarily confront them with a variety of evidence and methods aimed at determining the price of minority interests. In valuing a corporation, a court should consider proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court such as net asset values, market price, earnings, and the like.

B. Definition of “Going Concern” and Normalization of EBITDA:

The “fair value” of a business should be determined based on the value of that business as a going concern. The term “going concern” is generally understood to refer to a commercial enterprise actively engaging in business with the expectation of indefinite continuance. In the valuation context, it is generally used in contradistinction to a business that will be liquidated. Essentially, it requires an appraisal to assume the continued operation of the same type and size of business and to exclude consideration of any merger or liquidation.

C. Compensation for Past Misconduct:

Entry of an order directing the purchase of minority shareholdings pursuant to Fla. Stat. § 607.1436 requires the dismissal of the underlying petition for dissolution pursuant to § 607.1430. § 607.1436(6). However, courts have clarified that “fair value” still ought to take into account any effect thereupon of corporate asset waste or other harm caused by mismanagement.

In a comparable sales analysis, corporate waste would affect the estimation of fair value in that it would result in higher expenses, which would, in turn, yield a lower operating margin. Normalizing the operating margin according to that of comparable businesses for any distortion caused by greater than normal expenses.

D. Prejudgment Interest:

Section 607.1436(5) provides that the valuing court “may” award interest “at the rate and from the date determined by that court to be equitable. The statute further provides that “no interest shall be allowed” when the petitioning shareholder has acted arbitrarily or in bad faith by turning down a purchase price or otherwise lengthening the proceedings. In other words, giving the statutory language its plain and ordinary meaning, the only limit on the court’s discretion to award prejudgment interest on the value of shares to be purchased arises when the minority shareholder at issue has acted in bad faith.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Risk is defined by Webster’s Dictionary as “the chance of injury, risk or loss.” In the investment arena risk can be defined in a number of ways:

• with respect to fluctuating market values of securities and portfolios, risk means the exposure to uncertainty, which is manifest as variability (or, synonymously, volatility), and is measured by standard deviation.
• the uncertainty related to the outcome of an investment
• the variability of returns from an investment
• in its stricter and narrower sense, risk means the potential for loss of value.

When you are establishing your financial objectives, it is important for you to consider the amount of risk that you would be willing to expose your financial plan to in order to achieve your financial goals. It is for this reason, when you open your brokerage account, the account executive is required to review with you, among other things, your investment objectives, including risk. By way of example, I recently was looking at a new account document, which provided the following risk choices for the client to choose from: (1) safety of principal, (2) growth, (3) aggressive growth and (4) speculation (please note that some of these terms are also associated with the underlying investment objective). Usually these terms are not defined in the new account documents that are signed when your account is opened. Consequently, it is important for you and the account executive to have a meeting of the minds concerning these terms. Clearly, if you have a risk tolerance of growth, you don’t want the account executive soliciting your investment in a speculative security.

When discussing risk with your account executive, some of the commonly encountered types of risk that will or should be highlighted are:

1. Business risk – includes the uncertainty that pertains to a company’s sales and earnings, namely, that a company generates poor sales and earnings for a period of time. By their nature, some companies are riskier than others, and the riskier companies usually see greater fluctuation in their sales and earnings.
2. Management risk – includes the stability of management and the effect that it has had on sales, earnings, and future growth.
3. Financial risk – is the inability of a company to meet its financial obligations. One of the ways that financial risk can be measured is by the amount of debt that the company holds in relation to its equity. A company with a high proportion of debt relative to its assets has an increased likelihood that at some in time it may be unable to meet its principal and interest obligations.
4. Unsystematic risk – is the risk, specific to a company or industry. This risk pertains to a company’s business, its operations, and its finances.
5. Market risk – refers to the movement of securities prices, which tend to move together in reaction to external events, unrelated to a company’s fundamentals. Market risk is the risk that market pressures will cause an investment to fluctuate in value. Many investors believe that although you can diversify investments to virtually eliminate business, financial and operating risks, you cannot do the same with market risk. Diversification does not provide a safety net when an external event causes a decline in the stock markets.
6. Interest rate risk – is the rise or fall in interest rates that affects the market value of investments. Interest rate risk refers to changes in market rates of interest, which affect all investments.
7. Inflation risk – is the risk that changes in consumer prices will erode the future purchasing power of returns from investments. If prices in the economy rise (inflation), your future dollars will purchase fewer goods and services than they do today.
8. Event risk – is broadly defined as the possibility of the occurrence of an event specific to a company that could affect its bond and stock prices. Event risk can arise from a number of factors such as political upheaval, government intervention, natural disasters etc.
9. Exchange rate risk – is the risk that the exchange rate of a currency could cause an investment to lose value. An increase in the value of the dollar against a foreign currency could decimate any returns and result in a loss of capital when the foreign securities are sold.
10. Liquidity risk – is the risk of not being able to convert an investment into cash quickly without the loss of a significant amount of invested principal. Certain securities are more liquid than others; the greater the liquidity, the easier it is to buy and sell the investment.

A direct correlation exists between risk and return: The greater the risk, the greater is the potential return. However, investing in securities with the greatest return and, therefore, the greatest risk can lead to financial ruin if everything does not go according to plan. It is for this reason that you have agreement between you, as the investor, and your account executive as to the level of risk that you are comfortable with. Also, depending on any number of factors, the risk that you are willing to take may increase or decrease with time or circumstances. In such a case, it is imperative that you communicate this change, in writing, to you account executive.

Please keep in mind that risk is not only related to a particular security or industry segment but also to the overall trading strategy that is employed in your account. If you believe that you have suffered damages as a result of broker fraud or misconduct relating to the degree of risk associated with the operation of your account, please contact the law office of Russell L. Forkey for your initial consultation.

The primary focus of this article relates to the relationship between a customer and his broker. However, many of the concepts concerning risk apply equally to simply investing directly in a small to large business venture.