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When the Founder Dies, Who Gets the Voting Stock?

Assume that the founder is Dad and Mom doesn’t work in the business. Dad dies first. To whom should he leave the voting stock? Mom or the kids? It depends on your point of view.

 

Family In The Business Family Not In The Business
We hope Dad doesn’t leave the voting shares to those not in management, even though most of our parents’ advisors and friends said to leave the votes with Mom. Mom is the best one to get the voting shares. She can solve any family problems that may come along.
We’re worried about leaving the voting shares to Mom. We’ve heard so many stories of moms paying too much attention to the family interactions and not protecting the business. No one knows Dad’s desires better then Mom. No one knows us better then Mom. She’s sacrificed a lot, for years, to support the business. She has all the right instincts. She deserves to do what she think’s best.
It’s a horrible position to put Mom in if she ever has to take sides or solve problems among us. She deserves better.

 

Of course, both sides are right, for better and for worse. And, of course, you hope this conflict of perspective never happens. Unfortunately, it is too common. What to do with the voting shares is one of the most difficult and delicate of all family business decisions. It’s also a frequent reason that “dads” don’t face up to estate planning.

There are no easy or “pat” solutions. One factor is the age or maturity of the kids. The younger they are the more the voting shares should go to mom — or, as many families we know do, to a business-wise and close friend who serves as Mom’s co-trustee with mom. The older the kids and mom are, the more likely the kids maturity and mom’s eventually approaching incapacities tilt the decision the other way.

Most often the decision is made when everyone is young and never looked at again. Naturally, the changing circumstances and growing fears that come with time make rethinking the whole issue most painful, but most important.

We believe that an explicit long-term plan and a well-established independent Board of Directors are the best help. The plan can stipulate a date at which the parents’ estate plans can be reconsidered -- say when the youngest child reaches 30. Then the Board can take up the issue and review it every year or two thereafter, considering the kids’ roles in ownership and management, as well as the quality of their relationships.

Further, independent directors can serve as co-trustees, first with mom, later with the kids. Obviously, what everyone wants to work for is parents who trust their kids and kids who don’t need their parents to resolve their differences.

 

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