As any entrepreneur will attest, starting and operating a business comes with unique challenges. These challenges are a key reason that, by some estimates, half of the companies that are founded today will not exist four years from now. It can be argued that the effort and attention needed to find success precludes business owners from planning for failure. This webinar focuses on the realities of a failing business from the owners’ perspective. Join our panel of experts as they discuss the various considerations that should be given at the outset of start-up negotiations and through business breakup, including dispute negotiation and litigation. To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/common-issues-and-strategies-in-business-breakups-2021/

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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

3. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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5. Meet the Faculty
MODERATOR:
Max Stein - Boodell & Domanskis, LLC
PANELISTS:
Adam Hirsch - Roetzel & Andress
Linda Leali - Linda Leali, P.A.
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6. About This Webinar
Common Issues and Strategies in Business Breakups
As any entrepreneur will attest, starting and operating a business comes with unique
challenges. These challenges are a key reason that, by some estimates, half of the
companies that are founded today will not exist four years from now. It can be argued that the
effort and attention needed to find success precludes business owners from planning for
failure. This webinar focuses on the realities of a failing business from the owners‟
perspective. Join our panel of experts as they discuss the various considerations that should
be given at the outset of start-up negotiations and through business breakup, including
dispute negotiation and litigation.
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7. About This Series
Complex Financial Litigation
This webinar series focuses on the legal and financial realities that accompany unanticipated
adverse events, soured business relationships, and failing organizations. Whether you are a
general litigator, business owner, aspiring shareholder, or insurance claims analyst, this
webinar series will help you to understand and prioritize key concepts associated with
business breakups, shareholder disputes, claims for lost profits, and bankruptcy avoidance
actions.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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8. Episodes in this Series
#1: Common Issues and Strategies in Business Breakups
Premiere date: 2/24/21
#2: Nuts & Bolts of Lost Profit Cases
Premiere date: 3/24/21
#3: Resolving Shareholder Disputes
Premiere date: 4/21/21
#4: Defending Against Bankruptcy Avoidance Actions
Premiere date: 5/19/21
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9. Episode #1
Common Issues and Strategies in Business Breakups
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10. Reasons for Business Breakups
• Emotional
 Fraud
 Perceived Inequity
• Financial
 Retirement
 Bankruptcy
 Perceived benefits elsewhere
• Unforeseen
 Death
 Disability
 Decline of Market
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11. Common Issues in Business Breakups
• Accusations of shareholder oppression
• Accusations of breach of fiduciary duty
• Accusations of undue personal uses of company assets
 In particular, use of company personnel
• Accusations of self-dealing
• Accusations of asset misappropriation/fraud
• Proper valuation
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12. Why Do Owners Fail to Plan?
• Lack of pragmatism and foresight
• Lack of third-party guidance (legal, insurance, operational, valuation)
• Advisor costs
• „Handshake‟ agreements, lack of formal documentation
• Operational distractions
• Relationships: Family, friends (“blood is thicker than water”)
• Unrealistic Optimism – Unrealistic projections/expectations
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13. Preventive Corporate Planning
• Updated agreements (operating agreement)
 Change in assets
 Change in intentions
 Change in tax law
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14. Preventive Corporate Planning
• Generally:
 Have business agreements in writing and up-to-date
 Have a dispute resolution mechanism in place
 Consider incentives in dispute resolution mechanisms, such as “Baseball” or “Texas”
arbitration provisions
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15. Preventive Corporate Planning
• Buy-sell, shareholder, partnership agreements provisions:
 Eight “D‟s”
o Death, Divorce, Disability, Dissention, Dissolution, Departure (retirement), Debt
Overload (bankruptcy), and Decline of Market
• Sufficient funding vehicle
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16. Preventive Corporate Planning
• Provisions to forestall squeeze-outs
 Provision that commits board to specific course of action
 Supermajority provisions (if applicable)
 Dividend triggers, declarations
 Employment contracts
 Non-competes
 Right to compel dissolution
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17. Preventive Corporate Planning
• Arbitration provision
• “Baseball” or “Texas” arbitration provisions
 Parties involved submit proposals to arbitrator, and the arbitrator has to select one
proposal without modification
 Incentivizes parties to offer up more reasonable proposals
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18. Closely Held Business Issues
• Not easily liquid, marketable
• Concentration of control (family-owned businesses)
• Loose adherence to corporate governance
• Lack of communication
• Minimal distinction between owner and business
• Voting limitations and power for minority shareholders
• Liquidity for exiting shareholders
• Withdrawal and dissolution rights
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19. Closely Held Business Issues
• Minimal, if any, board oversight
• Minimal formalities in place
• Lack of transparency or self-dealing
• Document maintenance
• Penetration of corporate veil
• Lack of continuity of business operations
• Key shareholder concerns
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20. Majority Control
• Can lead to claims of:
 Oppression
 Self-dealing, misappropriation
• Risks of conventional corporate law norms
 Centralized control in board
 Majority control in voting directors
 May take actions detrimental to minority
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21. Shareholder Oppression
• Autonomous control that directs the inequitable transfer of wealth
• Squeeze-out or freeze outs
 Exclusion from profits
 Lack of dividend policy or declaration
 Lack of profitability due to excessive director fees, officer‟s compensation, bonuses
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22. Shareholder Oppression
• Involuntary removal from director or officer position
 Voting powers
 Deny access to information or documents
• Formulaic or other terms of buyout at less than fair value
• Running a “Taj Mahal” and overspending company assets
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23. Alternative Resolutions
• Can invite a third party to buy out part or entirety of business
 Have a 3rd party discrete investor come in and negotiate a buyout
 At the very least, can provide a “back of the envelope” valuation of the company from
an outside investor‟s perspective
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24. Negotiation, Mediation, and/or Litigation?
• Consider cost/benefit of alternatives – financial, operational
• Litigation outcome can be unpredictable
 Governing state law
 Governing agreements
• Mediation
 Structured and assisted negotiation
 Can be used in conjunction with litigation
 “The Courts of this country should not be the places where resolution of disputes begins.
They should be places where disputes end after alternative methods of resolving disputes
have been considered and tried.”
o Justice Sandra Day O‟Connor
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25. Why a Valuation is Essential
• Objective, third-party opinion
• Based on recognized valuation theory and methodology
• Considers any applicable valuation discounts
• Serves as a basis for negotiations
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26. Valuation Approaches & Methods
• Income Approach (ex. going concern)
 Discounted Cash Flow (DCF) Method
 Capitalization of Earnings Method
• Asset Approach (ex. holding company or unprofitable company)
 Adjusted Book Value Method
 Excess Earnings Method (hybrid income/asset approach)
• Market Approach (a relative valuation approach)
 Market Transaction Method (private transactions)
 Guideline Publicly-Traded Company Method (public transactions)
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27. Valuation: Use of Experts
• Use a qualified Business Valuation Expert
• Must be:
 Objective
 Experienced
 Credentialed
• Must apply and defend the use of judgment and estimates
• Applied methodology must be appropriately applied and fit the facts of the case or risk
being subject to Daubert challenge
• Relevant shareholder or other agreements, case law or statutes regarding valuation.
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28. Valuation: Use of Experts
• Hire the correct type of expert:
 Accounting
 Forensic Accountant
 Tangible Asset Appraiser
 Business Valuation
 Lifestyle Analyst
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29. Valuation: Use of Experts
• Use your expert to facilitate proper discovery and disclosure
 Adhere to the rules of evidence and procedures applicable to the case
 IMPORTANT: All work product may be discoverable if client hires expert directly
• Use the expert to educate the Court
 Expert is expected to be impartial and objective
 Testimony offered in the spirit of personal integrity, good faith and sincerity
• Use your expert to rebut the other side
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30. About the Faculty
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31. About The Faculty
Max Stein - MStein@boodlaw.com
Max Stein, a member of Boodell & Domanskis, LLC, is a business litigator focused on
meeting clients‟ business objectives, helping them resolve disputes at the most opportune
times. Max represents clients as both plaintiffs and defendants in a wide variety of forums.
Additionally, Max notes that one advantage of practicing at a smaller firm, is that he is able to
offer his clients high-quality, nimble representation at reasonable rates. To aid his clients in
achieving their business objectives, Max approaches cases as though they will go to trial,
utilizing his extensive trial experience. Max also counsels his clients, helping to identify and
navigate legal risks to achieve their business goals and protect their competitive interests
while managing and, where possible, avoiding the expense and uncertainty of litigation.
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32. About The Faculty
Adam Hirsch - AHirsch@ralaw.com
Adam is Of Counsel with ROETZEL, Chicago and focuses his practice on commercial and
business litigation, representing a wide variety of clients ranging from individuals to small
business owners to large corporations. He has a particular focus on investment disputes and
business fraud claims, and has represented investors and investment companies as plaintiffs
and defendants in lawsuits around the country. He regularly writes and presents on current
issues relating to business fraud. Adam also has extensive experience litigating contract
disputes, and has argued and tried multi-million dollar contract issues before judges and
juries nationwide. He also has experience in advising clients in employment disputes relating
to matters such as separation, severance, and non-compete agreements.
Before joining ROETZEL, Adam was a partner at Robinson, Curley & Clayton and an
associate at Jenner & Block in Chicago, where his practice focused on complex business
litigation.
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33. About The Faculty
Linda Leali - lleali@lealilaw.com
Linda Leali is the founding shareholder of Linda Leali P.A. Ms. Leali has extensive experience
and expertise with bankruptcy reorganizations, receiverships, debt restructuring and creditors‟
rights. She has been involved in some of the largest cases in U.S. history including the
bankruptcies of a Fortune 100 publicly traded energy producer, a publicly traded real estate
development company, large privately owned physician staffing company and automotive parts
manufacturer. Ms. Leali also regularly serves as a court-appointed receiver. She frequently
lectures to both attorneys and judges on both bankruptcy and receivership law.
To read more, go to https://www.financialpoise.com/webinar-faculty/linda-leali/
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34. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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35. About Financial Poise
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