The arrangement made sense right up until TSR actually started making real money. When you and your friends bust your asses to build a business, and have no substantial income or assets to fight over, running it as a labor-of-love makes perfect sense. But once they started bulk-hiring new staff and pulled off 5000% growth over five years - Why the hell didn't they hire a competent CFO???
It's a NORMAL pitfall in hobby companies.
It starts out as a hobby/lark. And there's a certain looseness in how the company is run.
However, once the company starts employing dozens of people and pulling in multiple millions a year, it's definitely NOT the best way to run the company and things DO need to change. It's just very difficult to see where that jumping-off point is when you're in the middle of things (especially if you haven't encountered this sort of managerial divide before).
This is speaking from experience. A few years ago, a partnership of mine nearly ran our company into the ground. Quite by accident. You go to bed one evening and everything's cool. Then next morning, the books are going "AUUGH! WHAT DID YOU DOOOOOOO!".
We were lucky we caught it when we did (though catching it SOONER would have been nice). And we were able to get the company turned around and working in a healthy manner.
Unfortunately, TSR wasn't able to do the same thing. Mostly from sheer inertia. And then, after the takeover, primarily because Lorraine Williams just didn't care about anything at the company or customer base other than what added to her personal bottom line.