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Second Generation Owners Don’t Always Get Along

Company founders often wrestle with how to bring their children into the company fold.  A shareholder may want his children to become owners, but not all owners should necessarily work in the business.  If a first generation owner has more than one child who wants to work in the family business, there are often challenges to overcome.  When there are two or more founders, though, and children of multiple different families want to become employees, the challenges are even greater.  Cousins, and even siblings, may get along well their whole lives; but that does not mean that they can work together.

Often there are personality clashes.  More often, though, there are inevitable differences in skill sets among individuals.  One person may be better at finance, while another is better at sales.  But what about the person whose talents are a bit more, shall we say, “hidden,” and who may not be able to pull their weight?

The company founders may plan for this by limiting who can work for the company, or by setting parameters for employment.  Clauses in shareholders’ agreements may call for a second generation owner to have achieve certain number of years of outside employment experience in the industry, or even a certain educational requirements, before being eligible to fulfill certain management or board roles with the company.  This is often easier than the owner saying to one of his children that the others do not want him working in the company, or worse, that the owner – Dad – recognizes that his son or daughter probably cannot “pull his (or her) weight.”

Shareholders of closely held companies in New Jersey should keep in mind that no drafting can be perfect, and there is no clause that can account for all potential issues.  It simply may come to the fact that the second generation owners just cannot co-exist.  If that happens, one side or the other could file a lawsuit to split up the company and force a buyout, assuming grounds exist under the New Jersey shareholder oppression statute.  But, as has been noted previously on this blog, these suits tend to take on a life of their own, resulting in tremendous legal costs, business disruption, and many other aggravations.  Hiring an attorney who is skilled in not only prosecuting a shareholder oppression case, but also settling one before too much damage is inflicted on the company, is crucial.

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