When a family member wants to sell stake in business

What happens in a family-owned business when a member wants to sell their share?

What happens in a family-owned business when a member wants to sell their share?

This is the second part in a series of articles that address common problems and issues in family-owned businesses. The articles are based on an interview between Al McClymont, CEO of Autologica Dealer Management Systems, and J.C. Aimetta, an expert and coach who specializes in family-owned businesses.

Al McClymont: Several companies I personally know of have suffered huge troubles that were even irreparable sometimes, both for the company itself and for the relationship among the members involved, the emotional relationships… when a family member decides they want to, or that they need to sell their share of the family business.

J.C. Aimetta: Well, in these cases, the first thing one should think about is how to avoid this actually happening, how to prevent the possibility of this happening.

First of all, we must distinguish between a person who sells because they want to, from a person who sells because they have to, because they have no choice, because they need the money for an urgent personal situation, an illness, a child who has a scholarship abroad, or something like that.

In this type of situation, the family-owned business should have a liquidity fund to be available, under equal conditions, for all partners to use in cases of personal emergencies. This liquidity fund, generally placed in investments that can quickly be turned into cash, implies an immobilization of funds that the family business usually does not want to have. But it is a guarantee, when an emergency situation arises, that prevents someone from being forced to sell their part.

Another thing to consider is that no one can sell unless there is someone willing to buy. Therefore, when someone wants to sell their part, it should be stipulated, written and signed, to whom the part must be offered. Because it is not the same to offer it to a brother, to a cousin, to the company itself (the company can reabsorb the partner’s part), or to a third party. Because when an angry family member decides to sell to someone who is not a part of the family, they are immediately including among the owners a person who is not a family member. In summary: the company stops being a family business.

In the next part of this interview, we’ll talk about how a family-owned business can reconcile the interests of family members who work in the company, with the interests of those members who don’t.

Author Bio
Al McClymont is founder and CEO of Autologica S.A. Founded in 1994, Autologica helps automotive, agricultural and construction equipment dealers increase their bottom line through the use of its Windows-based Dealer Management System and CRM tools. Autologica has a presence in South Africa, the Middle East, Asia Pacific, Mexico and South America. Read more at www.autologica.net.

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About Granger Whitelaw

Granger Whitelaw founded the Rocket Racing League along with partner, Peter Diamandis in 2005. See more information at http://www.grangerwhitelaw.com/blog and http://grangerwhitelaw.brandyourself.com View all posts by Granger Whitelaw

6 responses to “When a family member wants to sell stake in business

  • Rennel

    A family-owned business is any business in which two or more family members are involved and the majority of ownership or control lies within a family. Family-owned businesses may be the oldest form of business organization, and today they are recognized as important and distinct participants in the world economy. A family business can be described as an interaction between two separate but connected systems—the business and the family—with uncertain boundaries and different rules.

  • Cidney

    I think that is usually what happens in some big business because businesses and companies are being passed down generations to generation to their blood related or family and also it is being shared with the family. But anyway I don’t know what to say about it and I think it is a difficult decision.

  • Jeff

    This is really hard decision to make, since family comes first and a share will sure affect the whole functionality and development of the company. This will surely help the family with business, especially in making agreements so that everyone will feel equity.

  • Marieson

    We must distinguish between a person who sells because they want to, from a person who sells because they have to, because they have no choice, because they need the money for an urgent personal situation, an illness, a child who has a scholarship abroad, or something like that.

  • Gelou

    It’s like a political dynasty but it is more reasonable. Many have gone into that since of course families always help each other. Business sure is complicated especially on to that instance that one of the member sell her or his share into other stake holders and I don’t know how to comment on that. Anyway I am sure amazed by the article did study well some of your great hints.

  • James

    No family wants to build a business only to see it disappear when family members get tired of running it. But let’s face it, what that business really represents is a large majority of the family’s wealth. There are a host of tried and true methods to get money out of the company short of selling it. The founders could take cash out or have the company take on debt to pay them out. They could bring in a minority partner to make an investment. But all of these options pose risks to the company and the family.

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