Articles Posted in Business Owners’ / Managers’ Playbook

The Point

Corporate legal costs have risen steadily for the last 40 years (including 2020 — and excluding the Great Recession of 2008 to 2009). Meanwhile, the legal system’s demands on business increase relentlessly.

So, CFOs, or other business executives, need to step in and impose spending discipline on the corporate law function. Because lawyers in-house and in firms have not.

There really is no such thing as a “harmless” legal document.

Yet we all from time to time get requests to execute paperwork that we’re told is “a formality” or “merely technical” or “just something the lawyers want us to sign”.

The urgency of circumstances, or peer pressure, or a misplaced inclination to do-it-yourself lawyering, can weaken our resolve to act wisely.

Sarah Bradley, co-founder of a private equity fund called Kainos Capital, LLC, claimed in Delaware Chancery Court two weeks ago that two of her fellow co-founders, aided by the fund’s chief financial officer, cheated her out of her ownership stake and management role in the fund.

Or tried to at least. That’s what her lawsuit contends.

Central to this, she argues, is the fact that they obtained her signature on a “Conversion” document whose terms said that she had thereby consented to converting the fund entity from a limited liability company (LLC) to a limited partnership.

Bradley alleges that her two co-founders got her signature on that Conversion document by having the fund’s chief financial officer tell her — “fraudulently” as she put it — that the document’s sole purpose was to qualify for specified tax benefits for all of the co-founders.

But in fact, her complaint states, execution of the Conversion document was part of a conspiracy to reduce or remove altogether her ownership interest, and to squeeze her out of her management role in the fund that she’d co-founded:

” … The purported Conversion [from LLC to limited partnership] would extinguish her LLC interest, deprive her of her participation in management, and subject her to a [limited partnership] structure that was fundamentally different than the one agreed to by all of the Kainos co-founders when starting the firm.”

And Sarah Bradley alleges that she was paid zero for giving up the rights that her co-founders sought to remove from her.

…  

Even a casual reading of the complaint poses the question: Did Sarah Bradley ask a lawyer to advise her about her interests before signing this Conversion document?

Continue reading

Contact Information