In order to minimize the conflict arising from the exit of a family member from the ownership ranks, all exit strategies (death, disability, incompetence and voluntary exit) should be clearly identified, agreed upon and included in the shareholders’ agreement.
Nothing creates conflict like the exit of a current owner, whether it is voluntary or not. Walsh FBAS helps family businesses determine the terms and conditions for the exit of a family member from the ownership ranks. This will help significantly reduce conflict in the business and in the family as all the details have been pre-determined meaning there is no uncertainty as to how things should proceed.
Items that should be identified, agreed upon and addressed in the shareholders’ agreement for each exit strategy include what is expected/permitted of the exiting shareholder and what is expected/permitted of the company, the valuation methodology, payment term and schedule, which could be different for each type of exit strategy (death vs voluntary exit), security provided by the company for monies owed, recourse in the case of default, etc. As previously stated, the objective is to minimize potential conflict within the family due to a shareholder exit.