Private Company Investors

By Liz Monteleone and Ladd Hirsch

It is rare to find a business partner who is selfless. If you are lucky, it happens once in a lifetime.

Michael Eisner, Chairman and CEO of the Walt Disney Company from 1984 to 2005

Starting a company with a best friend or family member may sound like a great plan, because these new partners share a high level of trust and a close personal relationship, as well as excitement over launching a new business.  These co-founders foresee no problem in forming the company as a 50-50 split in which they expect to share equally in the company’s ownership, management and control.  In this heady state of forming a new company, akin to the bloom of a new romance, it may seem off-putting to consider and address a potential future ownership break-up in which one of the partners leaves the business.

But as former Disney CEO Michael Eisner notes, finding a selfless business partner is exceedingly rare, and the more likely result is that a serious rift will arise in the partners’ business relationship in the future.  It may be caused by a divorce, an unexpected illness or a change in business priorities that develops over time.  But realistically, the question is not “if,” but “when” a disagreement will arise, and how the business partners will handle this conflict and the potential need for them to participate in a business divorce.  The failure to acknowledge this risk at the outset and then address how to manage a deadlock or to structure the company to enable an amicable separation can result in significant cost to the partners and the business.
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The season finale of the hit reality TV show The Bachelor attracted more than 8 million viewers. My wife and teenage daughters help make up this devoted fan base, and watch every episode. Yet, when I question them about whether the subject of a pre-nup agreement has ever come up on the show, I get eye rolls, and comments like, “Dad, don’t be such a downer.”  Assuming that the Bachelor and his new fiancé do make it to the altar, however, the show also does not mention that marriages in the US still have just a 50% chance of lasting despite the continuing decline in the national divorce rate.
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