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Dealing with Family Members who are Silent Partners

By: Jennie Kermode - Updated: 15 Sep 2012 | comments*Discuss
Family Members Silent Partners Silent

Often when you start a family business you'll find that some family members don't want to take an active role in it, but are willing to invest money in return for shares. These people are referred to as silent partners. However, just because they are silent doesn't mean they won't be concerned about what's being done with their money. It's your responsibility to keep all your business partners informed. This will make them more confident about the business and more likely to maintain their investment.

Shareholders' Bulletins

Even if everybody involved with your business is part of the family, and you see them day to day, you should aim to produce regular shareholders' bulletins to keep them informed about what the business is doing. When you talk about the business in a family context you're unlikely to focus on the sort of details shareholders need to know.

A bulletin can provide figures and charts to make it clear where money is invested and how profits are developing. It can detail any anticipated problems and the strategies you intend to use to work around them, and it can celebrate your achievements.

Receiving a regular bulletin makes silent partners feel included in the family business structure. It prevents the build-up of resentment that can stem from feeling ignored, and it shows that you're not trying to hide anything. It also helps silent partners to feel connected to their money and to be aware of its usefulness, of its active role in driving the business forward to the benefit of the whole family.

Shareholders' Meetings

Whether or not you expect them to attend, you should make sure that your silent partners are always invited to your shareholders' meetings. You should hold at least one of these yearly - an Annual General Meeting - with others scheduled to suit your pattern of business and a facility for holding emergency meetings if big decisions have to be made at unexpected times.

These meetings represent an opportunity for your business partners to vote on key business issues such as new managerial appointments or changes of direction. They give you the opportunity to explain your current business strategy and take questions from the floor.

Although shareholders' bulletins are very useful, they don't provide answers of family members find particular issues difficult to understand, and they don't address concerns that you may be handling things badly. At a shareholders' meeting, nobody needs to stay silent. You can listen to all your business partners' concerns and address them appropriately.

Silent Partners And Dividends

Most people who undertake to be silent partners in a business - even a family business - expect to receive share dividends by way of reward. However, in a small business, a few years may pass before you're making sufficient profit to provide these. It is therefore very important to stay in close contact with your silent partners during those critical years and to soothe their fears that they might not get a return on their investment. You can do this by showing them how their money is working, emphasising the importance of building up capital, and making it clear that you're not just taking away all the profits for yourself.

Even though they may not generally have much to say, silent partners can be a vital and sometimes powerful part of your family business. Making sure you cater to their needs should always be a high priority.

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