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Ownership, Inheritance, Succession And Control In Family Businesses

July 30, 2019 Leave a comment

Starting-up and getting a business to stabilize and start paying off, is one sort of challenge.At the time,an entrepreneur might even be glad to have family and relatives pitch in and give them a helping hand.

Its only a little later that a whole lot of other challenges crop up.People who bear risk ,put their own life and priorities on hold or put in substantial efforts into a business expect that their contributions will be rewarded,not just perhaps in the form of a one-time or limited pay-out but in terms of a share of future profits and control over the business,so that they can guarantee and determine the quantum and timing of payouts.Perhaps even these challenges could be managed by having open discussions with all concerned ,ensuring full buy-in and clearly recording what is owed to who and why. Read more of this post

Filed under Entrepreneurship, Theory, Tool Kit Tagged with compensation, core business, daughters in family business, family business, family business ownership and control models, founder, free loaders, inheritance and succession in family business, nested model, owner-manager, partnership model, postaday, private company, profit distribution, public model, successor

Why Go Private?

March 28, 2014 Leave a comment

wealthymatters Being the promoter of a public company is seen as prestigious.So why do promoters sometimes opt to make their company private again?The simple answer is often the possibility of Private Gains.Public share holders and promoters often have vastly different perspectives on making money,vastly different time horizons when it comes to harvesting gains,vastly different risk perceptions and holding power.Here is an example:

In early ’13,Dell had a total market cap of about $22 billion. They also had about $11 billion in cash, which meant the stock market was valuing the entire business at $11 billion ($22 – 11). The company had a price-to-earnings multiple of about 8.5.

So the situation was that, if Michael Dell and private equity investors put in $2 bilion, used the cash on the company’s books and borrowed the remaining $9 billion, they could control the entire company without the hassle of having public shareholders.

The flexibility of not having public shareholders would enable Michael to do what has needed to be done for years, and that is massively streamline the company’s manufacturing and sales forces (probably through layoffs), re-focus the core PC business, grow the enterprise and consulting businesses, and make the company generally more Lenovo-like or IBM-like. Read more of this post