This chapter focuses on why family-owned businesses are different. Because the business owners, and managers, are all related family members, family dynamics always impact operating the business. The chapter details the use of two-circle family business analysis, focusing on ownership and family membership, and the three-circle model that focuses on ownership, family membership and also employment (participation). Use of these models can help an adviser predict conflicts in family businesses. Conflicts arise among individuals who work in the business and those who do not. The chapter also explores the differences between “family systems” – which value and reward individuals based on family membership, and “business systems” – that focus on effectiveness, efficiency and merit. In a family business a person’s last name often carries more weight than skills and ability when it comes to compensation and advancement. Finally, the chapter discusses the pros and cons of intervention to solve serious problems.

This chapter focuses on family issues in business operations. Family business planning must be carefully designed because it can have a dramatic effect on the finances of individual family members. Conversely estate and retirement planning for individual family members can have a major impact on the business. Unfortunately family members who work together in a business are not always able to get along. This chapter details common family issues, including divorce, and other conflicts, to enable an adviser to anticipate problems that a particular business may experience over the years. The chapter describes the importance of dealing with “soft issues" – family and personal problems that do not have quantifiable solutions and whose answers cannot be expressed in simple numeric terms. The chapter also details devices like family mission statements, family strategic plans, family constitutions, and family councils may eliminate conflicts. Finally, mediation and arbitration can minimize the impact once conflicts arise.

This chapter discusses power struggles, squeezeouts, and deadlocks in family-owned businesses, the adviser's role in resolving them, as well as techniques to protect minority shareholders. The chapter details the reasons for power struggles including both family and business reasons. The chapter discusses how minority interests are created and why difficulties frequently arise in the operation of a family business. It also discusses squeezeout techniques used by majority shareholders who enjoy control of the business against the minority shareholders to force a buy-out of their shares. The chapter also includes a detailed discussion of how different types of stock and bylaw restrictions can be used to protect minority shareholders in a family business. Finally, the chapter discusses the consequences of, and remedies for, shareholder deadlocks. Although the discussion in this chapter focuses on shareholders and corporations, the same problems and solutions will work for businesses organized as partnerships or limited liability companies.

Family businesses are different than other businesses. The primary difference is that family members are on payroll and their compensation often does not reflect the market for similarly situated employees. Not only are the amounts different but because of their relationships to owners and in some cases having ownership themselves, there is a great deal more flex available to family members working in the business to structure compensation for the greatest tax benefit. This chapter goes through compensation strategies such as ways to reduce payroll taxes, deferrals, using stock options and restricted stock, non-qualified deferred compensation and when to use it and using some anomalies in the law to the advantage of the family and the family member.

This chapter explores the full array of compensation techniques available to family businesses both for family employees and other key employees. It discusses the advantages and disadvantages of non-qualified plans and qualified plans and the special rules that apply to each. Then creative planning tools available are discussed with an eye toward minimizing the tax impact of each.

This chapter details the thorny issue of succession – who will lead the business in the future. This seemingly simple issue has proved the most vexing problem of all for family businesses. While the decision in a non-family business is generally made on the basis of merit alone, the succession decision in a family business is far more complicated. In some cases there may be no obvious candidate but there can equally be more than one able candidate which makes the decision even more complicated, because the decision will disappoint one or more family members. While choosing a competent non-family member may be a good business solution, the choice may be a disaster for the family. Sometimes older managers “hang on” too long. The chapter also suggests how the decision can be made and sets out a timetable for making and implementing the decision, while considering the interests of various family members.