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Family Owned Businesses: It’s a Family Affair

As a family owned business do you worry about the shares held by your daughter or son who may be married and what happens if they divorce?   Or what happens in the event of death?  Do you worry about shares staying within the immediate family (bloodline)?

There are practical measures that can be put in place giving all family members, whether or not they are involved in the business, the comfort they need for their financial future and an understanding of how they benefit directly or indirectly.    Family members need to know that there is a fair process for example, to keep shares in the family bloodline – if that is what you want and a fair process for rewarding those active in the business.

Handled with fairness, transparency and pragmatism this process does not need to cause undue heartache but it is absolutely essential for the ongoing health of the business and harmonious family relationships that these processes are clearly documented.

The starting point is to deal with share ownership on the occurrence of a given event (if the business is a limited company).   Having a hostile ex family member would not be welcome nor would the possibility that the ex-family member could choose to sell the shares to an outside third party.  A divorce for example, could trigger a compulsory offer of shares from the departing family member to the remaining shareholders who would then buy the shares either at a predetermined value or at a value assessed by a specified formula.

Family members can be required to offer their shares to the other shareholders should they want to sell so that they do not for example, pass their shares to an outside third party or to their partner. Again, a predetermined formula can be applied to value the shares so that there is no antagonism between siblings as to a fair price to either buy or sell the shares and you may choose to limit transfer of shares within the bloodline.

My next blog for family owned business deals with documenting what happens to shares in the event of the death of the business or family member.

Call Jane Latham on 01225 287516 for a free no obligation initial consultation or e mail: jane.latham@lcls.co.uk

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