‘Who Should Own The Business?’
Your transition plans are well in place but a niggling question of who should own the business continues to surface.
It is a good question that must be considered carefully.
If you are transitioning the business across to the next generation of family members but not all family members are, or will be, actively involved in the business then pausing and considering who should own the shares is a critical question.
I believe the answer ultimately turns on the size of the business and whether it is publicly or privately owned. The reason why you may consider not allowing family members who are not working in the business to hold shares lies in their commitment to the business and their alignment of goals. In a privately-owned business, if someone is a passive shareholder then their focus is likely to be on annual dividends and short-term growth in share value. They will want to maximise both of these. Whereas for those working in the business, they are more likely to be focused on growth and working capital and reinvesting profits into the business. Their view will be long-term and annual dividends and share value will not be as great a concern. Conflict may also arise, between these two groups, around remuneration of those working in the business, benefits they may receive, hours worked, business performance and other matters.
For the above reasons, families often only allow members who are working in the business to be shareholders.
This means that those family members who are not shareholders should be fairly compensated when it comes to dividing up the family wealth. They won’t receive shares, but they should receive other assets that represent a fair value. Where the business is publicly listed with family and non-family shareholders, the dynamics are clearly different, and the above concerns may no longer be of concern.
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An Invaluable Resource — ‘Transition — Orienteering The Lands of Succession’
