Case Study – Family Business Succession

Transferring a family-owned business to a new generation of leaders can be difficult. Once the process begins, there is no telling what may – or may not – be found with each discovery creating another challenge.

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Situation

The company was a leading specialty contractor in the state of Hawaii, doing business on each of its islands. The Founder had grown the company, having been given the majority of its shares from his father. He was now ready to retire and wanted to transfer the company to his son (Successor), who had been working there for several years.

In addition to the Founder, the company was partially owned two brothers who were active in the company, and two sisters who had been given shares in the company but who were not active in its operations. This created a potential problem since the corporate by-laws outlined how shares in the company were to be transferred.

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Solution

First, we held several meetings with the Founder, the two brothers and the Successor to determine the interests of all parties. We also completed an estimate of value on the business so that each of the owners understood the relative value of their shares. Working with the owners (Founder and brothers) we facilitated the discussion leading to an agreement of the share purchase, including the price, valuation metrics, terms and timing. Shares of all owners would then be offered to the Successor in a manner that would limit the financial impact to the company.

Since the two sisters also owned shares in the company, they were approached by the Founder and agreed to sell their shares to the company at the established price and terms.

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Results

After the sisters sold their shares to the company, the remaining owners completed a buy-sell agreement listing the value, terms, and conditions of the shares of the company. After signing the agreement the Successor was allowed to receive shares gifted to him by the Founder. Additional shares were made available to him as he showed the ability to successfully and profitably lead the company.

Over time, the Founder was able to retire from the business, having transferred his shares to the Successor who is leading the company with the other two shareholders.

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