Every company sooner or later faces the departure of a partner. And it does not necessarily have to be the consequence of a major disagreement in the decisions of the board of directors or the family council. Sometimes it may be due to a change of opinion about the viability of the business in a new socio-economic environment or simply personal reasons. In family businesses, a partner may want to leave simply because his or her professional vocation leads him or her to sectors far removed from the one in which the family business operates.
The exit of a partner is part of the life cycle of any company and does not have to be a conflict. However, it is true that exit processes in family businesses are often complicated. In this type of company, the exit process is orderly in only around 50% of cases. In 25% of the cases, the exit has to overcome a more or less conflictive negotiation. And in 25% of cases, the partner who wishes to leave the family business does not even manage to do so.
Better to be safe: the procedure for the departure of a partner in the family protocol
For this reason, it is best for the family business to make provision in the company documents and family protocols for what to do in the event of a partner’s departure. Thus, there should be orderly, clear and balanced procedures for conflict resolution and liquidation of shares or holdings. The priority should be to conduct any possible exit process in an amicable manner, preserving the value of the family business and the relationships between people.
At the other extreme, the family protocol should not contain excessively rigid clauses that prevent partners from leaving or use the dominant position of the majority to force the minority partner to sell his or her shares at too low a price. These are relatively common situations in family businesses. Because from their very conception, their fundamental objective is to keep ownership in the hands of family members. Many family protocols restrict the free transferability of shares and stockholdings in order to avoid the dispersion of capital in the hands of third parties. And yet, at one time or another, all family businesses have to face the departure of one of their partners.
When one of the family partners expresses a desire to leave the company, an empathetic effort must be made on both sides to reach a win-win outcome.
The mission of the family protocol is to guarantee a future for the company in which all family members participate. Although it may seem counter-intuitive, it is the best way to ensure the future of the family business. Because if a fair remuneration for the shares is foreseen, conflicts are avoided and the company’s viability is not jeopardised.
How to value the shares of the outgoing shareholder
In addition, it should be remembered that the right of separation guarantees the right of shareholders to voluntarily terminate their relationship with the company and to be reimbursed for their shares.
Reaching an understanding on the valuation of the shares of the partner leaving the company is difficult. This is because tangible and intangible assets of a going concern are involved in the valuation. If the parties do not reach an agreement on the fair value of these shares, the Commercial Register will appoint an external auditor to clarify this.
If you want to draw up a protocol for your family business that foresees all aspects of the possible departure of a partner in a non-traumatic way, Confianz can help you.