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When Fair Isn’t Always Equal: Dividing A Business For The Next  Generation

When putting up a family business, most business owners tend to focus on facilitating the growth of the business. We’re all about business here, and the plethora of business-related articles is an eloquent testament to that. But with all this information, we might have to consider that we need to think beyond ourselves, and we have to account for the next generation.

Most family businesses opt to split their companies equally among their children. And while this might seem like the right way to proceed, this can easily brew disaster by creating a family conflict that’s bound to yield a poor outcome for the business.

The Dilemma

A thriving business is something that is incredibly valuable and is also often the subject of conflict among siblings. This is because there are many instances where one family member decides to work in the business while others take a different path. To divide the business equally among all siblings in such a situation will surely not sit well with the sibling who dedicated both time and effort into managing and growing the business. Relationships can easily sour, and visions for the business are bound to clash. In fact, whenever there’s an inheritance involved, it’s highly likely that professionals like this California Trust Litigation Lawyer are called upon to help settle things fairly. Again, simply dividing the business equally among the siblings wouldn’t be fair, but there are a few remedies that you might want to consider.

Creating Voting and Non-Voting Stock

Restructuring a business in a manner that grants ownership to all siblings while granting more decision-making power or shares to the siblings who work in the business is a way to distribute the business fairly. It grants decision-making power to those who not only work in the business, but also to those who have a stake in the business. This ensures that the business is in the hands of all the people who have an interest in the business’s longevity.

Utilize The Death Benefit In An Insurance Policy

Another way that you can equalize the distribution of the business is to leverage a different benefit to augment what they lose from the business. A family member who’s going to receive a smaller portion of the business might be more than happy to receive a greater share from a death benefit.

Again, the equal division and distribution of a company might seem like the best and fairest way to hand your business over to the next generation, but this is far from the truth, especially because things are bound to be much more complicated than that.

You might have heard many fables about how there is safety in numbers, or power in size. It’s during these situations when this wisdom rings truer than ever. In a market dominated by huge corporations, it’s best to retain as much size as you can. After all, there is power in size.

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