Business Structuring & Family Harmony – Part 1

One of my partners, Jeff Faulkner, has written a great three part series on how structuring a business can impact a family's dynamics. I hope you can gain some tips on keeping the peace in your family by properly planning your business's structure as your read Part 1 of the series below. Business Structuring is a critical component of succession planning that can have a huge impact on family harmony. In the next three posts, I’m going to describe three different family business situations that I’m currently involved with where Business Structuring is causing havoc. The first story is a highly complex 3rd Generation Family-Owned business which consists of a real estate and a separate investment business with 4 family shareholders. Two shareholders, father and son, are active in the operating businesses and two shareholders, sister and a sister-in-law, are not active but are financially dependent upon the business. The ownership of the separate entities add even further complexity to the situation in that, the operating businesses own a piece of the real estate,  numerous trusts own a piece of the real estate and investment businesses, and the operating businesses have multiple owners consisting of other entities that the family shareholders control. I have done my best to explain this situation as simple as possible, but due to the bizarre nature of ownership, I have likely confused you. When we got involved, none of the family members, or any of the family’s advisors for that matter, completely understood the structure.  And for a simple family, it didn’t make sense and was causing relationship stress. The two inactive family shareholders were growing increasingly frustrated because they could not predict their income stream with any reasonable accuracy and consequently, could not plan their lives accordingly. The son was growing increasingly concerned about his fiduciary liability with his siblings. This structure has worked under the father’s leadership because the daughter and daughter-in-law have believed that things are being done in their best interest. However, nothing could be further from the truth. To create dependence in any human being is never in their best interest. If these issues are not worked out with a new, simpler structure, the likelihood of the next generation living under these conditions is highly speculative at best, and more likely pointing toward volcanic explosiveness. Fortunately, all family members have come to understand the issues and are cooperatively working toward a straightforward structure that is easy to understand and that creates predictable and meaningful sources of income. The initiation of the process towards an uncomplicated structure, in and of itself, has created a more harmonious family environment. The inactive family members’ frustration levels have subsided, and the son’s fiduciary liabilities have been reduced, as they all see movement and growth toward independence. Click here to read the second part of this three part series, "Business Structuring & Family Harmony - Part 2."