Blueprint for Key Manager Ownership in an SME Company
Publication Date
8-4-2023
Abstract
Entrepreneurs who are the sole owners of their companies enjoy benefits not available to fellow entrepreneurs who have partners or investors. These advantages include absolute control over operational decisions, complete autonomy regarding compensation, benefits and perquisites and the absence of litigation from disgruntled investors. As the business grows and prospers a key manager may assume significant operational responsibilities, becoming both a major contributor to profitability and someone to share managerial obligations. The entrepreneur may consider offering a minority ownership stake to such a key manager to motivate, compensate and retain his or her services. Key managers will have an inaccurate or incomplete understanding about owning a minority interest in a closely held corporation and must be educated about the nature of such an equity position. The company founder must also understand managerial, economic, financial and legal aspects of taking on a new employee-shareholder. The remainder of the paper focuses on the practical aspects of making an employee a shareholder in a privately held business. These include valuation, funding the purchase of stock and marketability.
Document Type
Article
Keywords
Entrepreneurship, agency theory, SME enterprise, rent sharing, key employee retention, minority ownership stake, buy-sell agreements, employee compensation, corporate governance
Disciplines
Finance
DOI
10.2139/ssrn.4531575
Source
SMU Cox: Finance (Topic)
Language
English
