Family Involvement in Business

searcher profile

April 25, 2024

by a searcher from Indiana University, Bloomington/Indianapolis - Kelley School of Business in New York, NY, USA

Hi all - I'm looking at a business with two family members of the seller involved in the company; wondering how others have structured around this or gotten comfortable with this kind of dynamic in other transactions. The seller is looking to exit the company post sale for retirement and his two siblings who are younger and don't hold any ownership are looking to stay on. One is a Project Manager (one of two total in the company) and the other is an Office Manager. The PM role is much more senior and a more significant role in the company. It may not be necessary, but I'm unclear on how easy the PM would be to replace at this point.

Have other searchers closed deals with dynamics like this? If so, how did you get comfortable with that dynamic and/or did you structure around that at all in a seller note?

I'm considering if there's a way to make the seller note partially forgivable if the family members leave within a certain amount of time as one option. I have not yet had a conversation with them, but that would be a key part of diligence.

Thanks for any/all feedback.

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
You can require those key employees to sign employment agreements at closing. Also having the seller note have some forgivableness to it if they walk would work as well. You could also entice them to stay by giving them a small amount of equity at close. I think what you need to do is try to determine how key they are to the business. Good luck.
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