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.
Continue Reading Half a Loaf is Better Than None—Except in Private Company Investing: The Potential Pitfalls of a 50% Ownership Stake in a Privately-Held Company