Family enterprise owners face unique challenges as they balance their ambition to grow with the effort to build the family legacy. For family business owners to accelerate the growth of their business and strengthen their equity, they may need to seek new sources of capital. Many look for funding that will not dilute the family’s long-term influence, which is why they often consider going public.
An IPO can help a family business bring in external managers and transform corporate governance
Going public doesn’t mean a family cuts ties with the business. Far from it. Whereas private equity investors will take a seat in some advisory or supervisory capacity, with an IPO, the free float and the diversity of capital markets investors keep the family with a seat at the table and a steadying hand in the culture of the business.
By separating the principal (owners) from the agent (external management), the family can also bring greater scrutiny to decision-making at the executive level.
The family can maintain control where it matters most to them
The family can do this by designing the shareholder structure, including:
- Legal form options - Some jurisdictions offer a variety of legal forms that separate principal and agent functions or capital participation and voting powers.
- Country of incorporation - Depending on the country of incorporation of the IPO vehicle, different legal forms are available and different corporate governance codices apply.
- Issue different share classes - Many publicly held companies offer different classes of shares with a different set of rights for shareholders. Family businesses can give one class of shares - the class of shares they keep for themselves - greater weight or super voting powers so that they can retain control of the company. This certainly benefits the founders.