When Family Shareholders Want Out

By Harvey D. Shapiro

Death, it sometimes seems, may be the easiest way out of a family business. With proper attention to insurance, succession, and estate planning, those who leave this vale of tears can also depart from their family firm with limited impact on the business. Other exits are often decidedly more traumatic for the businesses and the individuals involved.

Nonetheless, many family business owners have to realize there inevitably will come a time when some shareholders decide they want to do something else with their time and money. They may want to convert their investment into assets that are more liquid in order to meet other personal or business needs; they may want to diversify their assets to avoid relying too heavily on the company; or they may find themselves tired of the business — or (perish the thought) their relatives.

When a shareholder in a family business wants liquidity, "Rarely do these things end up with as much sweetness and light as when they start," says Milton H. Stern, a partner in the New Jersey law firm of Hannoch Weisman and author of Inside the Family Held Business. Agreeing on a price is difficult when a company is privately held — and when the buyers and sellers are all related. And the company may have difficulty raising the cash to pay off the departing owners. Thus, when shareholders demand to be bought out, the fraying of nerves and the strain on liquidity can be substantial.

March/April 1991


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