Leaving Your Family Business

Leaving Your Family Business

Moving on to pastures new? This is how to do it properly.

By Daniel Kidd

What are my rights?

You have no special rights when leaving a family business, compared with leaving any other business. Your rights will be dependent on the legal category of the business and your relationship with it, not whether it’s family-operated.

Most family businesses tend to be limited liability partnerships or sometimes limited companies, although other business types are possible. Your rights will depend on whether you’re a partner, a shareholder or an employee. In almost all cases you will be free to leave if you wish, but you should consult any contract or agreement you’ve signed that may impose conditions on leaving. You may be required to provide notice, or make arrangements to sell your ownership stake to other family members, for example.

Ownership stakes

As with any business, If a partner leaves, they wouldn’t retain any ownership stake. By retaining some level of ownership in a partnership company, the person would still be a partner.

With the agreement of the other partners, one partner may relinquish most of their responsibilities and reduce their ownership stake. This would involve one or more of the existing partners buying out the departing partner, or bringing in a new partner.

It’s best to plan for such changes when a partnership is first formed. Do this by including in the partnership agreement certain procedures or restrictions on what a partner may do when they wish to relinquish all or part of their stake. This is commonly called a buy-sell agreement.