Small Business

Resolve an Ownership Dispute in a Family Business


To avoid disagreements among family members, experts suggest meeting regularly, putting agreements in writing, and bringing in an independent adviser

I took over my father's business after working in the company for 15 years. I turned it around from a negative net worth to a $4 million valuation. My three nonworking sisters own 37.5 percent and I own 32.5 percent of the company. My mom and dad own the rest, but the family refused my offer to buy them out and told me I'm an employee and can quit if I want. I feel I'm getting a raw deal. Am I? —D.B., submitted online This is, unfortunately, a common problem in family-owned businesses. Members who work in the business and make it a success often feel, quite accurately, that they are carrying their passive relatives who stand on the sidelines, says John A. Davis, faculty chairman of the Families in Business Program at Harvard Business School. While it may be difficult, you need to recognize that your nonworking relatives "provide a patient and stable ownership base that allows other family employees to make changes in the company and proceed with little interference," he says. That is a valuable contribution that entrepreneurs who don't have family businesses miss out on. It is impossible to know whether you are being treated unfairly without getting your family's side of the story. At any rate, it sounds like there are multiple trust and communication issues that need to be addressed between you, your siblings, and your parents. Corrosive Mistrust

For instance, while you have nearly three times the ownership stake of each of your siblings, you also must make sure your compensation is at a fair market level, says Steven Moyer, a family business consultant and president of the Network of Family Businesses in Harleysville, Pa. "So many times, family businesses try to shortchange the family members. When there's mistrust and lack of communication, it compounds this tendency," he says. "If you are getting the money issues straightened out, the mistrust will smooth out as well." It's not surprising that your relatives do not want to sell their shares in a company that now has a healthy valuation, says Quentin Fleming, a family business consultant and author in Los Angeles. "I realize that you are not happy that your buy-out offer was not accepted, but the reality is that your parents and sisters are owners just like you, and there does not appear to be any mechanism compelling them to sell," he says. "Why should they? The business has become more valuable and might be expected to become even more so." Having regularly scheduled family meetings to discuss business issues and plans might be a good place to start working out the future of the company, he suggests. Bringing in an independent adviser knowledgeable about family business would also help, particularly in getting written agreements and succession plans in place, Moyer says. JoAnne Norton, an associate of the Family Business Consulting Group in Irvine, Calif., says you might use family meetings, with or without the help of a third party, to negotiate a deal for more ownership as you continue to increase the value of the business. "Talking with your sisters and parents in meetings you [keep holding], no matter what the outcome, may lead to a fair deal in the future," she says.

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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