When you own a family business and that business makes up the majority of your net worth, it’s natural to want to leave the business in equal shares to your children because that’s the fair thing to do, but fair doesn’t always mean equal.
Splitting ownership of a family business among siblings creates the possibility of intra-family conflict, and that risk increases significantly if some of the siblings work in the business while others do not. It is common that the “in-business” siblings want to reinvest profits to grow the business while the “out-business” siblings prefer that the profits be distributed to the shareholders, especially if those distributions are an important part of the out business siblings’ lifestyles.
In addition, the out-business siblings may question (a) how the business compensates the in-business siblings since higher compensation means lower profits and dividends and (b) whether it’s a good time to sell the business to a third party. These inherent conflicts can tear families apart and create massive financial and emotional damage.
