Conflicts with business partners are not just a serious distraction for majority owners of private companies, these ownership disputes can be expensive, time-consuming and harmful to the long-term prospects of the business.  The start of a new year is therefore a great time for majority owners to consider whether there are steps they can take to head off disagreements with business partners. Fortunately, the answer is yes, and this post looks at New Year’s resolutions that majority owners may want to consider that will lessen or completely avoid these ownership conflicts.

The Sweat Equity Problem

The first New Year’s resolution majority owners may want to make is to decline to issue  “sweat equity” in the company.  Sweat equity refers to the grant of an ownership stake in the company to employees or outside consultants who provide services to the company, but who do not provide any financial capital for their interest in the business.  Sweat equity is granted most often by new or emerging companies that are short on cash, and they therefore issue stock rather than paying compensation for the services needed.  In other cases, owners provide sweat equity to longtime employees as part of a succession plan.
Continue Reading

The flight attendants on commercial flights notify passengers where the exits on the plane are located. Fortunately, the vast majority of air travelers never have to put this advice to use.  In private companies, however, business partners head for the exits far more frequently as over the past decade, less than half of startup businesses survived longer than five years, and just one-third lasted for more than ten years.

Our previous post discussed steps business partners can take to avoid and resolve disputes. This post confronts the situation in which business partners conclude they cannot resolve their conflicts, and one or more of them decides to exit from the business. While breaking up can be hard to do, it should not threaten the company’s continued existence, particularly if the owners had previously negotiated and adopted a “corporate pre-nup” that will guide a partner’s departure from the business.
Continue Reading