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The Family Business Guide Other Works by Frederick D. Lipman International and U.S. IPO Planning: A Business Strategy Guide Executive Compensation Best Practices Corporate Governance Best Practices: Strategies for Public, Private, and Not-for-Profit Organizations Valuing Your Business: Strategies to Maximize the Sale Price Audit Committees The Complete Guide to Employee Stock Options The Complete Guide to Valuing and Selling Your Business The Complete Going Public Handbook Financing Your Business with Venture Capital How Much Is Your Business Worth Going Public Venture Capital and Junk Bond Financing The Family Business Guide Everything You Need to Know to Manage Your Business from Legal Planning to Business Strategies Frederick D. Lipman THE FAMILY BUSINESS GUIDE Copyright © Frederick D. Lipman, 2010. Softcover reprint of the hardcover 1st edition 2010 978-0-230-10515-7 All rights reserved. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. First published in 2010 by PALGRAVE MACMILLAN® in the United States—a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-28963-9 ISBN 978-0-230-11180-6 (eBook) DOI 10.1057/9780230111806 Library of Congress Cataloging-in-Publication Data Lipman, Frederick D. The family business guide : everything you need to know to manage your business from legal planning to business strategies / by Frederick D. Lipman. p. cm. Includes index. ISBN 978-1-349-28963-9 1. Family-owned business enterprises—Management. 2. Familyowned business enterprises—Law and legislation. I. Title. HD62.25.L57 2010 658⬘.045—dc22 2010002984 A catalogue record of the book is available from the British Library. Design by Newgen Imaging Systems (P) Ltd., Chennai, India. First edition: August 2010 10 9 8 7 6 5 4 3 2 1 To my brother, Harold Lipman, and to Charles S. Lipman and Beatrice Lipman, who were the founders of the author’s family business Contents Acknowledgments ix Introduction 1 1 Succession Planning 7 2 Family Employee Agreements and Shareholder Agreements 29 3 Governance Structures for Family Businesses 47 4 Worst Practices: What We Can Learn from Family Disasters 63 5 Compensating Family Members 77 6 Creating Phantom Equity Incentives for Key Employees, Both Family and Non-Family 85 7 Dealing with Inactive Minority Shareholders 95 8 Eliminating Minority Shareholders 103 9 Family Businesses in Financial Distress 111