Great Job, Kiddo!: Navigating Succession When Owners Seek to Hire Their Children

Employing family members in your small, closely-held business can often create problems among owners – especially for minority owners. The most obvious issue may arise when a majority owner is in control of the company, and half of their family seems to be on the payroll. Some may be outstanding employees while others may have a self-explanatory “no-show” job position. But even if e the family members are great employees, jealousy or ill-will can arise among other shareholders.  Why, they ask, doesn’t my family get the same benefit?

Many shareholder oppression actions in New Jersey arise – at least in part – because the majority owner is employing family members, as it can often be seen as an improper way to funnel more of the company’s proceeds to the majority owner, or at least to his family. The issue may be exacerbated, of course, when family members are placed on the payroll without discussion. The worst reactions occur when a minority owner happens to discover the familial ties in employment by accident. Often the majority owner’s refusal to share financial information with a minority owner is a deliberate attempt to keep such things hidden.

When ownership is 50/50, even when both owners employee family members, ill-feelings can be just as bad. If one of the two owners has a child who is an excellent employee, multiple, competitive issues are created. What are the odds that the other owner happens to have a child who is not only equally diligent and smart, but also follows the parent’s footsteps by actively seeking a position in the same industry? It is possible, though; it does happen.

Often owners groom and prepare their children for their position from early childhood, with the intention they will have a job waiting for them, regardless of how good the child may be at it. When one owner’s child is a natural businessperson and leader, while the other owner’s would never have landed the job in a million years were it not a family business, that’s when the situation gets sticky. Imagine telling your business partner that you think his child isn’t as qualified as yours. How well can that possibly go?

Employing children of owners is sometimes something that can be anticipated and dealt with at the creation of the company. Most often it is not, and instead arises years later as the child comes into the workforce. Whenever the issue comes to the surface, it should be dealt with carefully. Sometimes it is best to avoid it altogether, but other times generational transfer is the very reason the company exists in the first place.

A seasoned attorney who understands the psychology, as well as the law, can help you navigate these thorny issues when they arise. For inquiries and questions related to Business Divorce litigation, feel free to reach out to me at dcroberts@norris-law.com.