When I have asked owners of family enterprises about planning for the continued ownership, I frequently am told that they have a buy-sell agreement. While that is a good start, I let them know that the discussion needs to continue.
I then ask the following questions:
- Now tell me what does the agreement state about rights to employment for owners or family members, as well as participation in management and decision making?
- Does it address how conflicts are handled among owners?
- Does it provide guidance on the values of the family owners and how those values influence the enterprise?
- Does the agreement address the need of some family members for liquidity and the impact on the capital needs of the business?
- Is there guidance on the use of long-term trusts and the identity of trustees?
- If purchases or redemptions of ownership interest are considered, does the determination of the price provisions clearly define a standard of value and the manner in which the price is determined?
Asking these questions can lead to thought-provoking conversations, and then to more comprehensive planning that addresses family dynamics and interests as well as the requirements of the business.
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