INTRODUCTION

Most businesses start off as a dream.  The founder of the business decides they have a better mousetrap than other people in their industry of choice.  They either start the business by themselves or with some like-minded people.  With help from friends and families, the business will prosper and with some luck, grow and become a true business organization. One that has real value and may want to be continued past the working life of the founder.

This article will deal with those businesses that want to go past the controlling owners decision to start the business.  We will be concentrating on passing the business within the family and some of the pitfalls and challenges that many businesses face during transitions from the sole owner through ownership by many people.
The Controlling Owner

In our practice working with closely held, family businesses we find there are basically three types of business.  The first is where we have one strong founder.  This we call the controlling owner business.  To get this business started, you first have to have a person who is passionate beyond all rationality in getting their business idea off the ground.  When we start a new business, we don't think about the world not needing any more new businesses than exist now, we just know that we have a great idea that the world needs.

To get this business past the first stage of start up, you need tenacity, hard work, smarts and a little luck.  If you are able to weather the first three to five years of operations, you have a chance to have a business that will provide a nice living for you and your family.

Sibling Partnerships

Around the time the business starts to become very successful, there may be some children who are of age to start their working career.  The parent who started the business has encouraged their children to join them in the business the founder has put together.  The movement from having one owner who controls all decisions to one where siblings are working together is called the sibling partnership.

If the siblings do their job well and continue to grow the company, they will have put together an organization that not only provides a nice living for the family, but has started to develop real worth to other companies.  They get regular feelers as to whether they would like to sell their company to a bigger fish.  Some of these companies are sold at this point and some move to the third stage of family ownership, the Cousin Consortium.

The Cousin Consortium

At this stage of the business, there are usually four to ten people who are available and ready to join the business.  The family business has now grown to a point where it can afford to feed many families.  In addition, there are people who might become stockholders who are not involved in the business as an employee.
The challenge with making the cousin consortium work is figuring out how many mouths the business can feed, what should be required if anything to join the business and how should stock be owned.  For the business to move into a third generation of cousin ownership, these issues will have to be addressed.
This article will talk about the sibling partnership development stage and cousin consortium stage of business development.  We will consider some of the best practices of companies that have successfully moved through the stages of ownership.

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