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Asset Management / Wealth Management
Do Asian family enterprises allow family members to sell their stakes?
Lack of proper exit options for family members can disrupt business operations
Bayani S Cruz 16 Nov 2017

AS the ownership of Asian family enterprises extends beyond first-generation owners, there has been a rising need for these businesses to sell part of their stake to outside investors.

However, only less than half of Asian family enterprises have an exit option that will allow family members to sell their stake in the business in an orderly manner.

“Situations may arise where an individual family member decides not to pursue a role in the business and or seeks to liquidate his or her share. But 55% of families don’t have exit options,” says Cynthia Lee, managing director and head of wealth advisory group at J.P. Morgan Private Bank.

Citing a study conducted by the bank, Lee says that of the 45% of families who have exit options for their family members, these options are limited.

About 58% may sell only to family members, 31% have to sell to family members with a right of first refusal before they can sell to a third-party, only 11% are allowed to sell to third parties without restrictions.

The issue facing family enterprises without a proper exit option for family members is that it can result in disruption of the business operations.

“While successful families avoid or greatly minimize this disruption by having exit options in place, only half of the families we surveyed had some sort of exit plan. Of this most were limited to family members and were not available to ownership outside the family,” Lee says.

However, as family members increase, Asian family enterprises may be more likely to create less restrictive share-selling options, according to the survey.

“At the same time, there may also be a desire to limit the number of family owners to those who truly share a passion for sustaining the business,” Lee says.

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