When it comes to business succession planning, business owners sometimes assume that they need to equally divide up ownership. For instance, you may be a business owner with four adult children. The business is one of the most expensive assets that you own, so you’re thinking of leaving 25% ownership to each child.
But an important thing to remember is that this is not legally necessary. You do not have to divide up ownership evenly. In fact, doing things fairly may mean looking for another type of division. As one professor put it, when it comes to business succession, “Fair does not necessarily mean equal.” As the owner, you have the right to divide up business ownership however you see fit.
2 reasons for unequal division
The first reason to divide ownership unequally is just if you think it’s best for the company. Even if all of your adult children want to be involved, you may know that one of them has the skills and abilities to thrive in that role, while the others do not. Making things perfectly equal could actually be detrimental to the business because the person who is the best fit will not be able to make all of their own decisions.
The second thing to consider is if anyone has invested their time or energy in the business already. Maybe three of the adult children have gone to college, moved out and started their own careers. But the other one has stayed at home, working at the family business the entire time. It may be fair to give them a larger ownership percentage, even though it’s not equal.
These are just a few things to consider while making an estate plan or a business succession plan. Be sure you carefully consider your legal options.