I want to own and run my own business and need capital, which requires me to sell my shares in the family business. How do I go about this in the appropriate way? Contact my uncle who's CEO or my cousin who's the board chairman?
A: Not so fast. There are a number of implications here and you want to carefully weigh them up before committing to one course of action.
What is the new business idea and is it worth cashing in your shares? You can do a lot to assess your business before you start spending significant capital on it.
To have an idea if you are ready to go, you will have tested the market, identified team members, built your plan and worked out if it is worth pursuing, all of which will give you an idea of how much funding you might need. If you haven't done any of these things, you should.
Weigh up the opportunity cost of cashing out of the family business to invest in a new venture. Are you foregoing dividend income or some other benefit from being a part owner in the family firm? Is this a nest egg that your retirement plans rely on?
The investment in a new venture is a risky one. Using your own cash to bankroll it is only one way to fund it.
If you're set on selling, firstly have a look at your shareholders' agreement as this will set out the responsibilities you have and the rights of your fellow shareholders.
Legal advice is critical in these transactions, especially when you are dealing with friends and family. Get a legal perspective to lay out the options and what obligations and risks you are likely to encounter.
- Steve O'Connor is CEO of Creative HQ, Wellington's entrepreneurship and startup incubator
A: First step is to consult your shareholders agreement - this document should document what process you go through to sell shares.
Then raise it with the chairman - this is not an operational CEO issue.
Warning: selling shares in SMEs can be a slow process, and depending on what stage the business is at it may take time to get you hands on cash. It may pay to delay cashing up until you can maximise your return.
Often other shareholders have the first right to purchase the other shares. Given it's a family business they may not want outside shareholders in which case you option to monetize your shares may be limited.
- Mark Robotham is an SME business adviser. Website: growthmanagement.co.nz
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