Six Topics to Consider in Connection with Shareholder Agreements in Family-Owned Enterprises

When I have asked owners of family enterprises about planning for the continued ownership, I frequently am told that they have a buy-sell agreement. While that is a good start, I let them know that the discussion needs to continue.

I then ask the following questions:

• Now tell me what does the agreement state about rights to employment for owners or family members, as well as participation in management and decision making?
• Does it address how conflicts are handled among owners?
• Does it provide guidance on the values of the family owners and how those values influence the enterprise?
• Does the agreement address the need of some family members for liquidity and the impact on the capital needs of the business?
• Is there guidance on the use of long-term trusts and the identity of trustees?
• If purchases or redemptions of ownership interest are considered, does the determination of the price provisions clearly define a standard of value and the manner in which the price is determined?

Asking these questions can lead to thought-provoking conversations, and then to more comprehensive planning that addresses family dynamics and interests as well as the requirements of the business.