“Nothing personal” is a familiar phrase in family owned businesses. The intent is clear: run the family business like a business, not a family. So often, however, family business decisions do become personal and family members end up hurt or angry. The danger point lies not so much in the actual decisions but in the decision making process. Often the decision is sound but the process is flawed.
One example is that of “undivided” land and mineral rights. If the family business includes assets of land or mineral rights with clear title, the business is free to sell the asset. By contrast, when family members own the asset as individuals, the asset cannot be sold without the signatures of all the individual owners. When an asset is owned by more than one person none of the owners are free to sell their interest until they “divide” and legally describe the asset or all sign off on the sale. Deeds and Titles that fit this description are considered “clouded” and until the cloud is cleared up the sale is not legal. Many family members do not understand this and assume they could sell their portion of the asset whenever they wish. Often enough when there is a need for money or the value has increased one or more members decide to sell. There is shock and then anger at hearing “no can do”.
These misunderstandings all too often give rise to family arguments, bitterness and alienation. Inevitably one of the owners or, in the case of inheritance, one of the heirs demands their rights and threatens to sue. The rest of the owners are put in a bind if they do not agree to sell the entire asset: blocking the sale would set off a firestorm of negative family dynamics.
Therefore: educate your board and all the owners of your family business about these matters and make sure solutions are in place before the situation ever arises. There are three easy standard solutions.
If the asset is to remain undivided, the Chief Executive of the family business and the board make the decision about whether and when to sell company assets.
If the asset is to remain undivided but one or more of the owners wish to sell their portion, the other owners agree to buy it at fair market value and all the owners agree to a method of determining that value.
If the asset is to be divided, everybody will end up owning their portion and will be free to do with it as the wish.
And do not forget to consult both your attorney and your accountant when you establish
these procedures as well as when you utilize them. Let there be peace in the valley!