Private equity investments are becoming more common because they give businesses access to growth opportunities that might not be possible without the investment. These private equity deals often come with strategic guidance and access to capital, but this comes with changes to how business decisions are made.
While many of these situations work out well, there are times when founders and investors will disagree about how to move the company forward. In some cases, these disputes become a business divorce.
What exactly is a business divorce?
A business divorce involves conflict between the people who make decisions for the company. This can include founders, investors, shareholders, owners and members. Typically, the disagreements center around who’s controlling the business, how to handle timing for certain matters and changes to leadership. In some cases, it boils down to founders wanting to preserve the company’s original mission when the investors want to focus on growth and profit.
Why do these conflicts occur?
Many investors enter a business relationship with specific expectations, and they may have an idea of how to make their expectations occur. When they present these in an aggressive manner or in a way that’s inconsistent with the company’s identity, there might be issues between the owners and investors. A business divorce may become necessary if they can’t come to a mutually agreeable direction for the company.
These conflicts can negatively affect employees, customers and lenders. The company’s value might also be impacted. They can move forward quickly if one side believes that the other side is going to harm the company or force an unfair exit. Valuation is often a primary concern for everyone, but this must be handled in a careful manner.
Private equity can create opportunities for the company, but the decision-makers should know the pressure that can come with it. Once things devolve, a business divorce may be necessary. This should include looking at the documents, decision-making history and how everything affects the company. Having someone who can assist with the conflicts and resolution options may be beneficial.