Welcome to Murtha Cullina’s Family Business Perspectives Blog. This Blog is designed to identify and comment on common legal issues and current cases and developments that affect family-owned and controlled businesses.
Why focus on family-owned businesses?
Approximately 90% of businesses in the United States are family-owned or controlled. These businesses generate over 50% of the country’s GDP. Clearly, there are some noteworthy and very large family-owned or controlled businesses, including Walmart, Ford, and SC Johnson Company (which proudly bills itself in its ads as “a family company”), and these companies have succeeded through many generations of family management and ownership. There are also millions of other less well-known family businesses which operate on a smaller scale or strictly in their local markets – from the corner store, to the family farm, to the manufacturing company in the local industrial park, to the real estate holding company that owns and manages commercial or residential buildings, and so on. Regardless of the industry, all these family businesses, at one point or another, face the common issues of whether the business will transfer to a future generation, when and on what terms that may happen, and which family members will continue to be involved.
What are some of the challenges to successful planning, operation and succession in a family business?
For each generational transition success story, there are scores of businesses that just do not make it past the first generation. According to the prevailing research in the field, only around 30% of family-owned businesses survive long enough to transition from the first to second generations of owners, while between 10-15% make it through to a third generation. There are as many reasons for these low percentages as there are individual businesses. To be sure, some business owners decide that a sale to a non-family third party is the best exit option. On the flip side, some businesses fail before any possible succession date due to market forces such as technological changes, increased competition or changes in customer tastes that undermine the best-laid business plans and most diligent efforts to execute the plan. But for all family owned businesses, there are opportunities to protect their long-term viability and to maximize the chances for passing the business on to the next generation through thoughtful advance planning, proactive risk management, good corporate governance and prompt and effective dispute resolution.
For each generational transition success story, there are scores of businesses that just do not make it past the first generation.
How can Family Business Perspectives help family-owned businesses?
Through this Blog, we will provide commentary on the wide range of legal issues that face family-owned businesses as they work to compete in their markets and to preserve the value of the business for both the current and future generations of family owners. In addition to topics that face both family-owned and non-family-owned businesses alike, we will explore the legal and business life-cycle issues that are sometimes complicated by the family relationships among the business owners and other constituents. These issues include:
- Considerations for entity formation documents, including shareholder agreements, buy-sell agreements, by-laws and operating agreements
- Vehicles for ownership of family business interests, including trusts and LLCs
- Management rights and responsibilities, including ways to minimize risk to the company and its assets, such as employment agreements, insurance, data security practices, and regulatory compliance programs
- Governance issues arising from shareholder and director conduct, including relevant fiduciary duties, access to company information, and voting rights
- Succession issues, including estate planning techniques to preserve and transfer family ownership interests
- Dispute resolution, including common claims such as minority owner oppression and requests for dissolution upon deadlock between the owners
- The effect of divorce on family-business ownership and management
- Sales and dispositions of family businesses or assets, including valuation, mergers, spin-offs and liquidation
We have had the pleasure of working with many family owned businesses across numerous industries in the over 75 year history of our firm, and look forward to many more years of doing so.
We hope the ongoing commentary provided through Family Business Perspectives will be a helpful resource to those readers – including clients, advisors, and journalists – who encounter any – or many – of the legal issues that face family owned businesses.