Winstead Business Divorce

Business Trends and Legal Insights for Majority Owners and Minority Investors in Private Texas Companies

Latest from Winstead Business Divorce

In the private company world, the buck stops with the majority owners, who generally hold the reins to running the business.  In our experience, however, it is not uncommon for some majority owners to push the limits of their control by engaging in self-dealing transactions that are for their own benefit.  The self-interested transactions in which majority owners may engage can take many different forms, including paying excessive bonuses to themselves, directing the company to…
By Sam Vinson and Ladd Hirsch In his famous “To Be or Not to Be” soliloquy, Hamlet anguished over whether his future was worth living. [1] Hopefully, private company founders picture a future less bleak than Hamlet’s grim outlook. When the founders of fast-growing private companies accept new investment capital, however, they need to consider the future of the resulting ownership structure of the business, particularly when the financing involves issuing new company shares. When…
By Jeff Balcombe [1] — We are pleased to present this guest post from Jeff Balcombe, a highly regarded business valuation expert based in Dallas, who is a founding principal with his firm BVA Group. In a perfect world, business partners who reach the point of parting ways would have a clear, unambiguous plan in place governing their separation.  Unfortunately, when they engage in business in the real world, many company owners who need a…
“The bad things you can see with one eye closed. But keep both eyes wide open for the little things. Little things mark the great dividing line between success and failure.” Jacob Braude, Author and Humorist (1896-1970) By Sean Brown[1] and Ladd Hirsch In business, an eyes wide open approach is essential to the successful purchase of a private company. When the purchaser of a private company enters into a letter of intent (“LOI”) or…
By Ladd Hirsch and Trip Dyer[1] “There is no such thing as a free lunch.”  It is a common expression with a clear meaning— don’t expect to receive something for nothing.  But there is an important corollary expressed less often: it is possible to receive something that will have value in the future, but without having to pay for it now.  Like seeds waiting to sprout, the concept of a private company profits interest fits…
By Ladd Hirsch[1] “Water, water, everywhere, And all the boards did shrink; Water, water, everywhere, Nor any drop to drink.” The Rime of the Ancient Mariner, Samuel Taylor Coleridge, published 1798 This riveting poem by Coleridge relates the story of a sailor who is cursed for killing an albatross, which results in the ship’s crew nearly dying of thirst while they are surrounded by the great expanse of the ocean.  While not nearly as dramatic…
The statistics are grim on relationships remaining intact between business partners.  This month’s edition of Inc. magazine cites Noam Wasserman, entrepreneurship professor at USC’s Marshall School of Business, reporting that 10% of co-founders end their business relationship in less than one year and 45% break-up within four years.  While these statistics are focused on two-person owned companies, break-ups are at least as common among businesses with multiple owners.  Faced with these distressing figures, this post…
By Brad Monk and Ladd Hirsch People change, and not always for the better. Which leads to the question:  what is the best course of action when a trusted business partner turns out to be a rotten egg?  The answer is not easy, but usually the best course of action is to promptly remove an untrustworthy partner from ownership in the business and also from participation in the company’s management. Removal Provisions Need to be…
By: Mark G. Johnson and Ladd Hirsch In Edgar Allan Poe’s short story, the Purloined Letter, his fictional sleuth, C. Auguste Dupin, successfully located a stolen letter the thief had cleverly concealed by hiding it in plain sight.  In the legal world, letters of intent (LOIs) are used to form partnerships, raise funds, and add investors, among other things, but the common use and non-binding character of LOIs does not mean they are problem free. …
By Ryan Bruderer and Ladd Hirsch Just as an excessively lavish desert can ruin a fine dinner, including an overly broad indemnity provision in a private company agreement can prove to be too much of a good thing for the company.  The point of indemnity provisions is to protect company executives (e.g., officers, directors, managers) from claims made against them in the good faith performance of their duties.  To ensure the net is broad enough…