There are thousands of large and small family-owned businesses in and around the Philadelphia region. Often, the issue of who actually owns the business comes up, especially when trying to get a business loan or selling the business. This is important to resolve as soon as possible in order to avoid business litigation that may arise. With some family-owned businesses, the entity has been in operation for so long that everyone loses track of whose name is on the ownership papers. This can happen when many members of the family work for the company.
There are five basic family business ownership models. When every family member who works at the business understands these five models, usually they all can decide on what type of business structure should be used.
This is the simplest form of family business ownership. The owner-operator business ownership model is when one person or possibly a married couple own the business and will be responsible for all the decisions.
In order for this model to succeed over generations, there has to be a decision by the owner and other family members of who the successor will be in the future. Once the owner-operator retires or passes away, the successor can take over the company smoothly.
In a family partnership, different family members are leaders of the company, and they are usually equal owners in the company. A problem with this type of ownership could arise when future generations want to become partners as well. For example, three sisters are partners in a family owned diner, but as they age, their children want to become partners as well. Under this scenario, there has to be delicate negotiations and honest conversations.
In a distributed model, the ownership is passed down to most or all descendants, whether or not they work in the company. This allows for the continuation of the business and the compensation of all family members. The owners would have to negotiate a fair compensation package that would adequately compensate the family members who work in the business.
In a nested model, different extended family members own different parts of the business. For example, smaller family ownership groups sit inside larger ones, similar to a nest. This system of family ownership works when there is an overall business owned by many members of the family, but other members want to branch out into new or other areas of business.
Under the public model, the business is treated like a publicly traded company, even though it is still owned by the family. Whether shares are publicly traded or not, the business is run by professional managers, and the owners play a minimal role, usually limited to electing board members.
If you have questions about your family business and its ownership status, our Philadelphia business lawyers at Sidkoff, Pincus & Green P.C. can help. Call us at 215-574-0600 or contact us online to schedule an initial consultation. Located in Philadelphia, we serve clients throughout Penns