More than three quarters of all businesses in the US are family run. (The proportion is even higher elsewhere.) Family ownership means that family relationships, for good or for bad, often trump (or at least complicate) whatever the corporate documents say should be done about distribution of profits; hiring, firing, and promotion of managers; purchase or sale of the company or of an owner’s interest in same; etc… I advised one sibling (out of six equal share owners) in a company near Chicago about a revised buyout deal a couple of years ago. The CEO and one other sibling with officer status (but no more shares than any other sib) wanted to fire an unproductive next-generation family member located on the Pacific Coast, who concetrated on surfing rather than selling. My client wanted to be sure he would get a fair share of future distributions and a voice in any future corporate governance changes. As things turned out, the draft circulated gave him – and others who would stay after Junior went – more money, but less voice in sale or management of the company. This was deemed acceptable, because nobody but the incumbent really wanted to (or was qualified to) be CEO.
Legal Action Suggested: Take a careful look at “who decides what” according to the buy-sell, distributions, salaries, and other provisions of your company’s ownership documents. Make sure buy-sell considerations and your annual or other distributions fit the current company value, and reflect the sources of new sales, products, and other things that add to that value. Try to get unproductive people out of the company, but do so in a transparently fair way, with governance and income distribution arrangements that that avoid long-term resentments, wherever possible. There is nothing like a good family feud to spoil many future holidays.
Questions? Call (800.630.4780) or email Bill (wprice@growthlaw.com) for advice on your family business.
