Accounting and Equitable Accounting

What is accounting and equitable accounting?

Accounting refers to recording, classifying, and summarizing financial transactions to provide helpful information for decision-making purposes. It involves the preparation of financial statements such as balance sheets, income statements, and cash flow statements, which give a clear picture of a company’s financial health.

Equitable accounting in Florida refers to the process of dividing the assets and liabilities of a business in a fair and just manner among the parties involved. It is an equitable remedy that the court grants at its discretion. Situations such as a partnership dissolution or a business sale may give rise to equitable accounting.

In the case of a partnership dissolution, equitable accounting will involve determining the value of the business assets and liabilities and dividing them among the partners according to their respective ownership percentages or the partnership agreement terms. This process may involve valuing the business’s assets, such as property, equipment, and inventory, as well as liabilities, such as outstanding loans and unpaid bills.

On the other hand, in a business sale, equitable accounting may involve determining the business’s value and dividing the sale’s proceeds among the owners in a fair and just manner. In this situation, equitable accounting usually requires considering factors such as the owners’ contributions to the business, the length of their involvement, and any other relevant factors. For example, suppose one partner has done most of the work in acquiring contracts and business for the partnership, and the other partner has not contributed.

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What legal issues typically arise related to accounting and equitable accounting?

The following disputes are among the most common in accounting and equitable accounting:

• Valuation of business assets: One of the critical legal issues in equitable accounting is the valuation of business assets. Inaccurate or incomplete valuations can lead to disputes over the division of assets and may require expert testimony to resolve.
• Identification of ownership interests: It is crucial to accurately identify each party’s ownership interest in the business to determine a fair and just division of assets. Disputes may arise if there is a disagreement over ownership percentages or if one party claims a more significant ownership interest than the other.
• Interpretation of partnership agreements: In cases where the business is a partnership, disputes may arise over understanding the partnership agreement.
• Disputes over business debts and liabilities: Equitable accounting for a business must also consider any outstanding debts or liabilities of the company. Disputes may arise over the division of obligations, mainly if one party is unwilling or able to assume responsibility for certain debts.

What are relevant laws related to accounting and equitable accounting in Florida?

In Florida, the laws related to accounting and equitable accounting are primarily established by case law, as no specific statute governs. Instead, Florida courts established this action as an equitable remedy.

Through their decisions, courts have allowed an action for accounting and equitable accounting in several situations, including:

• An action between an attorney/client, executor/heir, guardian/ward, corporate officer/shareholder, agent/principal, or trustee/beneficiary.
• Actions by investors against dissolved corporations and their representatives that have a fiduciary relationship with the investors.
• Actions by sales agents for an investment fund against the fund’s manager and trustee where no legal remedy is available.
• Actions by one joint venture against another joint venture.
• Actions involving employment relationships

What is required to prove a case of accounting and equitable accounting in Florida?

Under Florida law, a party that wants an equitable accounting must prove that:

• A fiduciary relationship exists between the parties, or the subject transaction is complex; and
• The remedy at law is inadequate, or accounting is predicated on a complicated contractual relationship.

Typically, accounts are sufficiently complicated to warrant an equitable accounting when a jury would not be reasonably able, based on the time and effort required, to assess the evidence and reach an accurate value of the amount owed

When a set of facts is appropriate to meet the accounting and equitable accounting requirements, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path forward to determine if equitable accounting is an appropriate remedy.

To see what actions may be available for your unique situation, please contact our office to set up your initial consultation.

What are common defenses to accounting and equitable accounting in Florida?

The primary defenses to accounting and equitable accounting in Florida include the following:

• No fiduciary relationship: Equitable accounting claims often arise in a fiduciary relationship, such as a business partnership. A party may argue that no fiduciary relationship existed, so the court should dismiss the claim.
• Viable remedy at law: The right to equitable accounting under Florida law requires the lack of an adequate remedy at law. The defendant might argue that traditional legal remedies are appropriate, so there is no reason for the court to award equitable accounting as a remedy.
• The account is not complex: The defendant could argue that the dispute is insufficient for equitable accounting. The defendant could use evidence, including the length of the contract and the amount in controversy, to allege insufficiency.
• Laches: Laches is a legal defense based on undue delay. The defendant may argue that the plaintiff filed the equitable accounting claim too late and that the delay has caused prejudice or harm.
• Unclean hands: The unclean hands defense is based on the principle that a party who has acted improperly or in bad faith should not be able to seek equitable relief. A party may argue that the party seeking equitable accounting has acted unethically or inappropriately and, therefore, should not be entitled to relief.
• Lack of evidence: A party may argue that insufficient evidence supports the equitable accounting claim, which may include arguments that the financial records are incomplete, inaccurate, or not relevant to the lawsuit.

One core defense strategy is for the defendant to show there is another viable remedy at law because the account is not complex. Courts only give this equitable remedy when other remedies at law are inapplicable. The defendant can allege this is inappropriate by introducing evidence that the contract was not for a long time, does not involve a lot of money, or is relatively straightforward.

To see what defenses may be available for your unique situation, please contact our office to set up your initial consultation.

Have more questions about an accounting and equitable accounting-related situation?

Crucially, this overview of Accounting and Equitable Accounting does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to set up a consultation.