By L.M. Sixel
Houston Chronicle
WWR Article Summary (tl;dr) How are partnership troubles similar to marital disputes? Houston lawyer Ashish Mahendru counts the ways.
Houston Chronicle
Business partnerships, like marriages, are built on trust, friendship and shared financial goals, says Houston lawyer Ashish Mahendru.
He has built a legal specialty navigating disputes between business partnerships, which can turn sour if one partner feels cheated when company funds go missing or work duties aren’t divided equally.
The Chronicle sat down with Mahendru to talk about what happens when the bonds are shattered and his edited remarks follow.
Q: You call yourself a business divorce lawyer. How are partnership troubles similar to marital disputes?
A: In a family partnership — a marriage — you can walk in and say I don’t want to be with that person anymore and terminate the relationship. There is no corresponding right to go to a judge in a partnership dispute to ask the court to throw your partner out. You can’t just say there are irreconcilable differences. We have to create legal risk to eject them — remove them, buy them out — and regain control of the business.
Q: Do you typically step in before problems erupt?
A: Sometimes. But most of the time the dispute has erupted and we get called to figure out how to contain the damage. It could be raiding the till, starting a competing business, poaching employees or stealing company trade secrets.
Q: What often causes problems in the first place?
A: They did not properly and thoughtfully express the expectations of each other when they founded the business. It is imperative not to just talk about the rosy picture but what can go wrong and how the company will address the problems. A company agreement is like a prenuptial agreement.
Q: What often goes wrong?
A: One partner feels that he/she is doing most of the work while the other is reaping most of the rewards. That unbalance creates distrust and friction. In that scenario, the partner that feels cut out starts taking self-help measures. Like taking money out of the company without authorization. Withdrawing funds from the bank account. Writing themselves a check. Paying personal expenses. The other partner finds out, a confrontation takes place and the dispute is well underway.
Q: Why do you call it self-help measures?
A: Because the partner who felt they were doing the work but not reaping the rewards is taking matters into their own hands. They convince themselves that their conduct is totally justified. It’s not uncommon to see a company officer sued for using his company credit card for personal expenses and exotic trips to vacation hot spots.
Before they make the decision to charge a personal expense to the company account they go through mental gymnastics on why it should be a company expense. Once that happens, it becomes a slippery slope.
Q: Were you a theater major in college? Maybe English literature?
A: Liberal arts at the University of Texas at Austin. A heavy emphasis on literature and Shakespearean dramas.
Q: Does it come as a surprise to your clients who discover their partner has been using company funds for personal expenses?
A: Invariably, yes. The entire relationship is built on trust. I have clients in that position for 20 plus years not questioning their partner. When the dispute erupts the microscope looks back to the relationship with laser focus. We look at expenses and what bucket of money should have come back to the partnership but didn’t.
Q: Is there a chance for reconciliation?
A: In my experience by the time they come to me they may not know the relationship is shot, but when we step in and investigate the extent and scope of damage, the realization the relationship is shot becomes clear. You have two entrepreneurs, founders and fanatics who are passionate about their business ideas, driven to succeed and they don’t want their blood, sweat and tears wasted by the person they trust most to bring that vision and passion to life. If your partner turns out to be the person who stabs you in the back, the intense collateral damage for that wound is intense.
Q: Are there any industries that lend themselves more to conflict than others?
A: The classic dispute can resolve around doctors. The income pot is so high and their business relationships are so poor they invariably trip up. They don’t have the time and don’t have the proper checks and balances in place. They are willing to look the other way until they discover how much money was taken from the company. But the human greed factor is across the board.
