Proactively Planning Succession Means Fewer Headaches for Business Owners
Many family businesses get handed down to the next generation, and in my experience, accomplishing generational succession is often the single achievement that brings joy to a business owner.
“My company will outlive me!!”
But often it is hard – sometimes extremely hard - to find a successor within the family who wants to be in the business. Many owners have been forced - regrettably – to sell their company because their kids simply don’t want to run the family business. Sometimes, though, there are multiple kids who ultimately share ownership.
But even when multiple kids from the family run the company, usually only one can be in charge. Or only one child work at the company, while the others are passive owners with no real connection to the company except through ownership. Either way, some of the second-generation owners are left on the outside looking in - or are made to feel that way. Not receiving documents or other information, not being consulted, not being paid the same, not being paid at all are just some of the issues that can create bad blood. Now the founder whose fondest dream was for his company to be passed down from generation to generation has unintentionally created conflict by failing to take steps to prevent it.
Don’t let that be you.
Conflict can be avoided if duties and responsibilities are delineated before stock is passed on. For example, there can be a written agreement directing that one person is in charge of sales while another is in charge finance. Or one can handle domestic production while another handles the overseas division. Problems usually arise among members of successor generations when one of them believes that their dad favored them, or valued their skills more, or wanted them to “run the place.” But if you make clear exactly what you want each person to be doing and why their job is important, significant problems may be avoided.
Understanding why dad “passed you over” for running the company, or a certain aspect of it, can sometimes help to alleviate hard feelings . Not always, of course. But more open communication is usually better than less. If you have already passed your company to the next generation without taking steps to preempt petty jealousies, and they are already infecting the business, it still may not be too late. Have an attorney who is your trusted advisor help you mediate the issues between your children. Or at least try. The fate of your company may literally depend on it.
Please do not hesitate to reach out to me at dcroberts@norris-law.com.
About the Author – Business Divorce in NJ
David C. Roberts, Chair of the firm, specializes in complex commercial litigation, including fraud, trade secrets, and restrictive covenants, with a focus on business partnership and shareholder disputes in New Jersey. Known as business divorce litigation, these disputes often involve shareholder and LLC member oppression, embezzlement, owner freeze-outs, dissenter’s rights, and efforts to dissociate or expel an owner. Dave strives to resolve matters through mediation but is a seasoned trial attorney when needed. He frequently writes and lectures on minority shareholder disputes. With extensive experience representing both minority shareholders seeking buyouts and majority owners defending against such claims, Dave offers unique insight into the strategies and challenges of business disputes, particularly in family-owned companies.