At some point in their lives, many family businesses face a decision regarding whether to authorize and issue non-voting stock or not. This common strategy can be very helpful in accomplishing tax and estate planning objectives as well as adding family members to the ownership structure without necessarily giving up voting control by the senior generation. However, unlike marketable securities held as financial investments, ownership in closely held businesses, whether voting or non-voting, carries with it important considerations not usually apparent in open market investments.
Some of the factors to be considered when expanding ownership in the family business are whether the prospective owners are perceived to have the following:
- Shared ownership values
- A strong sense of stewardship toward ownership in the business
- Willingness to support board, management, employees and the shareholder majority
- High level of Trust with other owners
- Constructive participation in family meetings
- Commitment to teamwork and collaboration
- Strong personal bonds and relationships with other owners
When these qualities are present, the chances of future conflict within the ownership ranks is generally minimized.