Transferring ownership
Every family enterprise should have detailed controls over ownership transfer that are consistent with the Types of owners in the enterprise. An Investing family will expect to have the opportunity to cash-in their shares and redeploy their investment if it produces a below market rate of return or if they are offered a premium price. This would not appeal to a Managing family, who, in contrast, will be concerned about securing the continued involvement of owners in active leadership and restricting ownership to those who are employed in the enterprise.
How the policy governing ownership transfer is created will be affected by whether ownership is privately controlled or publicly traded. In either case the policy usually covers gifts (during life or on death) and sales. In a private company the rules governing sale should specify an internal pricing mechanism that is consistent with the Types of Owners. Governing owners who accept that ownership is about preserving and extending an ownership legacy and achieving returns that are not wholly financial, are more likely to accept a discount being applied to the full market value of their ownership than an owner with an Investing mindset who would always expect to maximise their return.
Private or closely held companies with strict controls over ownership can struggle to provide anything near to an open market for selling shares and sometimes to partially redress this market inefficiency, families make financial provision to fund periodic share redemptions.
