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Ownership Options For Successors

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EQUAL TREATMENT:

My dad wanted to treat all four or us kids equally. In fact, this desire, was so strong, that when he acquired 440 feet of island waterfront property, he wanted us to all have 110 foot lots side by side. (He probably would have dressed us in matching outfits, if he could, in spite of the fact that 2 of us were girls and 2 were boys!)

When planning ownership succession for our family construction business, dad just assumed we would each want to own 25% each. However, we were all very different, and we all had divergent goals and interests.

 

SIBLINGS WITH RADICALLY DIFFERENT GOALS:

My eldest sister, Helen, had a genuine interest in owning shares in the business. She also wanted to be active on the board. As the eldest, she was also interested in freeing up some cash, since she had lived much of her life with paper wealth but little discretionary cash. In short, Helen wanted several things, but most importantly,  INCLUSION.

My brother Chuck, an architect, preferred more independence. He therefore offered the rest of us the opportunity to purchase his 25% share in the business. We were able to do this, over a five-year period, respecting his desire to have no ongoing involvement with the company. In a word, Chuck wanted LIQUIDITY.

My sister Mary was interested in the long-term potential of the business, partly because she had no near-term need for cash. But, unlike Helen, she had no desire to be involved on the board and so she appointed her husband, Phil George, to take her place at the table. If she could have it, Mary wanted GROWTH

As for me, I didn’t need cash at the time of the purchase so I was quite willing to use the company’s cash flow to buy out Chuck over time and, subsequently, pay Helen for half of her shares. Of primary interest to me was the opportunity to participate as an executive of the firm, where I ultimately became President and CEO. In summary, I was looking for a CAREER.

 

A COLLABORATIVE SOLUTION:

In the end, we all agreed on a solution that respected everyone’s individual needs and preferences.

 

DIFFERENT TYPES OF OWNERS:

There are really only 4 basic options for sibling successors, and we each chose one of them. Chuck became a “Non Owner” by selling his portion of the business to his siblings. Mary chose to become an “Investing Owner” and had a passive role, with limited involvement. Helen elected to serve as a “Governing Owner” participating actively on our board of directors.  My role, was as a “Managing Owner”. This enabled me to engage as a member of the company’s senior leadership.

 

FACILITATIVE HELP:

We would never have been able to figure this out on our own. It took the assistance of a third party, who could talk privately with each of us, and uncover our individual motivations and desires, and help us to see that WE ALL HAD OPTIONS.

Sadly, many successors that I meet are never given a choice. Its just assumed, that in order to be fair, each sibling will be granted an equal ownership stake in the family business.

Wouldn’t it make more sense to give sibling successors an option regarding what kind of an owner they would like to be? At first, my dad wanted a “homogenized” solution, treating us all the same. However, in the end, he was happy when we decided to create a customized solution for our generation. It wasn’t a one size fits all plan, each of us had something which was tailor made to fit.

 

David C Bentall
NEXT STEP ADVISORS
Graduate of YPO British Columbia

For 20 years, David C Bentall was a third generation executive in his family’s real estate business. For the past 2 decades, he has served as an educator and Family Enterprise Advisor, and may be reached at bentall@nxtstp.net. Website:   www.nxtstp.net. David is also the author of “Leaving a Legacy – Navigating Family Business Succession.” To order a copy, personally signed by David, please email bentall@nxtstp.net