By Frederick D Lipman (auth.)
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Extra resources for The Family Business Guide: Everything You Need to Know to Manage Your Business from Legal Planning to Business Strategies
Example text
Finally, after the death of the owner and the owner’s spouse, outstanding members of the board of directors can serve as tiebreakers in case of conflict among the siblings or cousins of the next generation. It is preferable to have a majority of independent directors on the family business’ board of directors. The owner would also be a director. The owner could control the board of directors by having multiple votes as a director to the extent permitted by state law. Even if state law does not permit multiple director votes by the owner, almost all state laws allow the holder of a majority of the outstanding voting stock to remove directors without cause (assuming the board is not classified as to terms of office).
A provision that the family members lose their severance payments if they litigate their employment termination) in the succession plan. The legal mechanisms in the Will can include impartial tiebreaker provisions and put and call provisions that are given to both the majority and the minority equity holders. Under a put and call provision, a majority equity holder has the option (the “call”) to purchase the minority interests at an independently appraised value, with payments spread over a number of years plus interest.
Sometimes dividing a business works well, but at other times, it merely leads to conflict between independent businesses each owned 100 percent by a single child. For example, the child who owns the West Coast retail stores may decide to come to the East Coast, and visa-versa. The owner should not be in the position of limiting what each child can do with the business after the owner’s death. Succession Planning ● 21 If the Business Is Easily Divisible into Separate Businesses, Give Each Child 100 Percent of the Equity in Each of the Separate Businesses If the family business is divisible into separate businesses, some succession plans will provide for either equal ownership among the children of the founder or majority ownership, with one child in the majority and the other child or children in the minority.