From time to time, we’ll post Bea Wolper’s “A-Z Keys to Family Business Success” followed by a question from one of our members on the topic – here’s E:
E- Equal. When dealing with family businesses – especially when some family members work in the business and others don’t – “Fair is not always equal, and equal is not always fair.” This phrase has great relevance when family business owners are doing their estate planning.
Question: What is fair if it’s not equal?
Answer: Family business owners usually want to treat all family members as fairly as possible (not necessarily in keeping with holiday gifting where everything has to be equal). Fair does not always mean equal, and equal is not always fair. If a parent has three children, but only one is working in the family business, dividing the ownership into thirds is usually not fair (or smart if the goal is to keep the business in the family). Often, owners not working in the business care primarily about receiving cash dividends, while the owner working in the business cares about keeping the lights on and growing the business – which requires re-investment. This conflict could even result in two of the three children deciding to sell – not what the founder intended at all.