Many family businesses have family members who own shares but do not work at the company. As such, it is important to set policies for generating liquidity for shareholders and communicate them. Family shareholders want to know if they will receive distributions and if they can redeem or transfer shares. They also want to have a voice in return expectations inherent in owning shares. Successful businesses often extoll the virtues of long-term ownership for family members and how patient capital can benefit the value of the business and family over time. As a private firm that has endured for centuries, we at BBH understand the balance between capital reinvestment and owner returns.
When working with family business clients on distribution and liquidity matters, we help them answer questions, such as:
- How have the family’s expectations for returns and distributions been set? Is it well understood across the family?
- What share redemption mechanism is in place to facilitate orderly redemptions? How are shares valued, and how often?
- What is the role of the family in setting debt levels, risk parameters, etc., for operation of the family business?
- Do the current leaders discuss liquidity openly with all shareholders?