Breaking Deadlocks Over Valuation

Most first-generation businesses owe their dynamism to the single-mindedness of the owner and the spirit of entrepreneurship which usually pervades the company. When two or more generations become active in the business, however, these same qualities can generate fireworks. To ensure against possible future conflicts that could destroy the business, family members should set up orderly procedures for buying out dissidents well in advance—while the business is healthy and the generations are pulling together as a team.

The first step should be to elect all family participants in the business to a board of directors. The board takes the second step, which is to draw up an agreement that spells out the terms of buyouts. The board initiates and approves the agreement. It is important for all family members to be on the board to ensure they are committed to procedures in the agreement to cover internal disputes.

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