What occurs when a family member wishes to sell their stake of a company that is family owned?

This article is the second in a series that discusses frequent concerns and problems in family-owned businesses. The pieces are based on an interview between J.C. Aimetta, a family-owned business expert and coach, and Al McClymont, CEO of Autologica Dealer Management Systems.

Al McClymont: When a family member decides they want to, or that they need to, sell their share of the family business, many companies I personally know have experienced significant problems that were sometimes even irreparable, both for the company itself and for the relationship among the members involved, the emotional relationships.

J.C. Aimetta: Well, in these situations, the first thing to consider is how to prevent this from actually occurring or the prospect of this occurring.

First of all, we need to make a distinction between someone who sells because they want to and someone who sells because they have no option but to, because they are in a desperate financial situation, such as an illness, a child with a scholarship abroad, or anything similar.

A family-owned business in this circumstance should establish a liquidity reserve that is equally accessible to all partners for usage in the event of personal emergency. This liquidity reserve suggests an immobilization of funds that the family business often does not want to have because it is typically invested in assets that can be easily converted into cash. However, it is a guarantee that prohibits someone from being forced to sell their stake when an emergency scenario develops.

Another thing to keep in mind is the fact that no one can sell until a buyer is available. Therefore, it should be specified, in writing and with a signature, to whom the portion must be offered when someone wants to sell their part. Because offering it to a brother, a cousin, the business itself (the business can reabsorb the partner’s half), or a third party is not the same. Because when a furious family member decides to sell to a stranger, they are immediately including a person who is not a family member among the owners. In conclusion, the business ceases to be a family enterprise.

We’ll discuss how a family-owned firm might balance the interests of those family members who work there with those of those who don’t in the following section of this interview.

 

 

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