Assertive, Intelligent Representation For Public & Private Entities

Equal ownership in family business can be a mistake

They may have a secret favorite, but most parents pride themselves on treating all their children the same, showering them with relatively equal amounts of time and support. Thus, it comes as no surprise when business owners who pass on a business give equal ownership of a store or company to the kids, whether between two, three, four, or more children/beneficiaries. Some business advisers, however, believe that equal partnerships can be a mistake.

Making the wrong assumptions

Parents may make costly assumptions about the kids who are to receive the business:

  • The parent may think that the family dynamic will not change after they leave the business or die.
  • The parent may think that each child is equally suited to do the necessary work to keep the company successful.
  • The parent may think that the kids will be willing to work together, with family bonds overcoming any disagreements.

It is complicated

The only thing that siblings may have in common is that they shared a bloodline and grew up together. It can and often did lead to friction as kids, and those same emotions and resentments can still play out in adult interactions. It makes for complicated relationships for siblings as well as their spouses and children. It can worsen if the siblings are thrown into the pressure cooker of running a business together, particularly if there are mistakes, growing pains or an economic downturn after the parent leaves. Moreover, an odd number of partners can lead to resentment toward the majority.

Even siblings who get along may have different working styles, which can lead to frustrations or resentments over the direction of the business, the level of risk in taking a route, and the capability or willingness to do the work successfully.

Solutions may be available

As with any business dispute, it may be necessary to negotiate, arbitrate or mediate a dispute between family partners. Ideally, this process is put in place before there is a disagreement, and it calls upon a neutral entity to moderate the conflict. If they cannot reach a compromise, it may become a matter of buying out a partner.

The next step may be court

Attorneys often help with mediation or arbitration, but an impasse between parties may mean going to court with legal guidance. While it sometimes is not acceptable to leave a family business’s future up to a judge, this may be the only avenue to ensure that the solution is a fair and equitable one that settles the matter.