Family owned businesses might thrive over several generations. In order to experience lasting success, a family owned business must transition ownership from one generation to another.
To maintain a healthy business and preserve family harmony, it might be better to transition ownership to members of the family who are active participants within the business, while permitting non-active members of the family a chance to ‘cash out’ and direct their money elsewhere as their preferences desire.
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Individuals are extremely fortunate to have a chance to work in a family business. Even with this type of excellent opportunity, most people opt not to work in the family business. During some point, the active participants within the business ought to be rewarded with greater control and ownership, as the non-active participants might be bought out of any business ownership stake they have in order for their fortunes to rest outside of the family business. The non-active and active members of the family all have reasons to favor this particular outcome.
Non-active vs Active Members of the Family
Active participants who display their worth, are going to want more control and a higher stake within the business. Active participants won’t have a desire to feel that their hard work will benefit the non-active members as much as themselves — a ‘free-rider’ problem. Permitting the active members to become the beneficiaries of accelerated or continued success of a company is vital in order for the fortunes of individuals to be in line with their efforts.
Members who are non-active might want to cash-out their ownership interest. For family members who are non-active, tying up personal money in a business over which they possess no control or daily impact might not be desirable. From the viewpoint of wealth management it might not be good to hold an illiquid asset with which they possess no or very little control.
If a business is likely to be publicly traded or if the business pays dividends, it might be a situation where the non-active members like to retain ownership. If there isn’t any likelihood of income or liquidity from shares of a closely held company, shareholders who are non-active oftentimes like to cash-out and put their equity within investment alternatives closely aligned with their life choices and personal effort.
Ensuring Lasting Success
Generation upon generation the problem of a surging amount of non-active family members who retain ownership becomes a larger concern as they become more distant and the amount of non-active shareholders rises. Family business owners who are non-active might be concentrated more on their individual situation than the company’s long range success. Taking measures to retain ownership inside the active members of the business will keep the operational and ownership aspects of the family and company in harmony.
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Family Business Lawyer Miami
The Campbell Law Group can help you make the best strategic business moves, from corporate formation to dissolution. At every step of the way, we will help you meet your business objectives while minimizing your liability and helping you stay in compliance. Contact our Family Business Lawyer Miami today at 305-460-0145 to discuss how we can work together for your continued business success!