Parents often go to great lengths to make sure they treat their children equally. So, it is no surprise that parents who own a business will often divide ownership equally among the children. While they appreciate the sentiment, some business experts believe passing a business to all the children equally can be a recipe for disaster.
Do not make assumptions
A business owner may spend decades building a successful business that they envision is integral to their legacy. However, it is a mistake to assume that the kids will all be on board with continuing that legacy. For example:
- A parent may assume that blood is thicker than water, overcoming all personal or business disagreements.
- A parent may assume that the family dynamic will remain unchanged after mom or dad passes or leaves the business.
- A parent may assume that each child is equally qualified to own and run a business.
Parents can avoid assumptions by discussing their plans with the kids.
Mixing business with family is complex
Family-owned businesses can have an ambiance where employees feel like extended family and customers like the continuity. Still, siblings do not always make good partners. They may have a lifetime of insecurities, grudges, or perceived slights going back to early childhood. Unrelated business partners join forces to build a business, which can mean a unified and uncomplicated vision (which may change after years of working together). This family dynamic can lead to factions among ownership, which may open new wounds over time, particularly if the same minority continually gets overruled.
There may also be additional pressure between the children or even imposed by the parent or customers. It is hard enough running a successful business, and it becomes that much harder when people are second-guessing the new owners or offering too much “free advice.”
Same blood, different visions
The new owners may be siblings, but they could have very different ideas about running the business or even wanting to be involved. Issues could include:
- Different views of how to move the company into the future
- Different views on work-life balance
- Different views of drawing income versus reinvesting in the company
- Different levels of engagement
The facts of life
Every partnership involves disagreements, which the new owners can ideally work out on their own. However, it may be necessary for the owner to realize that some kids are more qualified or engaged. It can mean putting one person in charge. Another option is valuing the business and then equitably dividing the entire estate. Business owners should make decisions after discussing plans with the family and then working with a knowledgeable estate law attorney to help ensure that the transition is smooth and successful.