Explaining the Five Rights of Family Business Ownership
What are the Five Rights of family business ownership?
The Five Rights of family business ownership are the five key decisions that owners have the exclusive right to make together: the right to design, decide, value, inform, and transfer. How owners use these rights can guide their enterprise toward strength or cause instability. In this video, Rob Lachenauer unpacks each of these rights, showing how they empower owners to shape not just their businesses, but also the dynamics of their business families.
The right to design
Design is about who can be an owner and what you own together. Is ownership limited to your family, or can non-family members own part of the assets? Do trusts own the assets, or do you own them directly? These are some of the questions that should be answered in discussions about the design right.
The right to decide
Decide is about how your system makes decisions. Do you have a board of directors? Does it include independent members or only family? Do you have an owner council? These choices belong to the owners alone.
The right to value
Value is about what your group of owners most wants from ownership. There are always at least three trade-offs in play: growing the business, taking money out of it, and controlling it for non-financial reasons. Value is deciding, specifically, what you care about most.
The right to inform
Inform is about how open you choose to be with information regarding the business. Many private business owners prefer to keep information to themselves, but the amount of information that can and should be shared with various groups (Next Gen, management, family, etc.) is decided upon by the owners.
The right to transfer
Transfer is about what happens to ownership across generations. Are you going to transfer the business to the next generation, or sell, and to all of them or some? The right to transfer includes the decisions about how ownership moves forward.
Use your rights, or lose them
These five rights are use them or lose them. If you do not activate them, someone else will, whether the government through the IRS or a non-family actor. Be intentional. These are hard decisions that take time and collective effort to think through, so ensure you are having the conversations between owners that empower you to shape not just your business, but your family too. And remember that family business is a team sport, you can win together or you can lose together.