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What happens in a family owned business when a member wants to sell their share

This is the second part in a series of articles

The articles are based on an interview between Al McClymont, CEO of Autologica Dealer Management Systems, and J.C. Aimetta, an expert and coach who specializes in family-owned businesses.

Al McClymont: Several companies I personally know of have suffered huge troubles that were even irreparable sometimes, both for the company itself and for the relationship among the members involved, the emotional relationships... when a family member decides they want to, or that they need to sell their share of the family business.

J.C. Aimetta: Well, in these cases, the first thing one should think about is how to avoid this actually happening, how to prevent the possibility of this happening.

First of all, we must distinguish between a person who sells because they want to, from a person who sells because they have to, because they have no choice, because they need the money for an urgent personal situation, an illness, a child who has a scholarship abroad, or something like that.

In this type of situation, the family-owned business should have a liquidity fund to be available, under equal conditions, for all partners to use in cases of personal emergencies. This liquidity fund, generally placed in investments that can quickly be turned into cash, implies an immobilization of funds that the family business usually does not want to have. But it is a guarantee, when an emergency situation arises, that prevents someone from being forced to sell their part.

Another thing to consider is that no one can sell unless there is someone willing to buy. Therefore, when someone wants to sell their part, it should be stipulated, written and signed, to whom the part must be offered. Because it is not the same to offer it to a brother, to a cousin, to the company itself (the company can reabsorb the partner's part), or to a third party. Because when an angry family member decides to sell to someone who is not a part of the family, they are immediately including among the owners a person who is not a family member. In summary: the company stops being a family business.

In the next part of this interview, we'll talk about how a family-owned business can reconcile the interests of family members who work in the company, with the interests of those members who don't.