It's obvious if you do the math: The longer a family business has been in existence, the greater the number of people who may own its stock. And that's the exact scenario that worried DeNean Stafford III, CEO of Stafford Development Inc., a second-generation diversified company in Tifton, Georgia. Currently, he and his two sisters (both of whom are inactive in day-to-day management) own stock. That's perfectly fine for now, but what happens in the future when generations of kids, grandkids and other assorted relatives end up with ownership interests in the family business?
"I've seen too many family businesses collapse on top of themselves because the stock was fragmented and owned by shareholders who had no interest in the business," Stafford says. So, to insulate itself, Stafford Development created and implemented a detailed plan for the redemption of its company's stock.
"It's ideal if a family business can do this before the stock certificates leave the founder's hands," says Peg Eddy, president and principal of Creative Capital Management Inc., a San Diego-based family business consulting firm. If that's not possible, she urges the shareholders and investment management to do it-and do it before the business runs into a warring situation.