Trusted Advisor to People-of-Accomplishment and Family Enterprise
Business-owning parents are no different from other parents. They want to be fair to their children and treat them equally. It is for this reason many decide to gift equal shares in the business to all their children, regardless of their respective contributions to it or involvement in it. By confusing “fair” and “equal,” they end up being unfair to one or more of their children – the very thing they had wanted to avoid.
After all, there is nothing fair about a child’s having to share the financial rewards of the business with siblings who contribute little or nothing to its success. Nor is there anything fair about having to include siblings with little or no business knowledge in making important decisions for the business. Love goes only so far. No amount of love can make an unfair situation fair or be a substitute for competence and experience.
Business-owning parents who appreciate the difference between “equal” and “equitable” approach share-ownership issues differently. Some gift more shares in the business to children who make larger contributions to the business. Others give fewer or no shares to children who are not active in the business. Many parents postpone making such decisions as long as they can, sensing that whatever they decide is likely to displease one or more of the children. Unfortunately, their reluctance to deal with the issue head on fosters anxiety in the children, paralyzes the business and forestalls planning.
Some parents feel so conflicted about the “equal” versus “equitable” distribution of shares among the children, they’d rather sell the business and divide the proceeds equally among them. Unfortunately, this ends up being unfair to the children who work in the business, want to continue growing the business, as well as to honor the family legacy.
Suggestions to business-owning parents: