The passing of ownership from parent to child, or other family member, is fairly common in a family-run business. What might have started first as a necessity has, through time, become tradition and is still a point of pride among many business owners. As the business owner, you will want to provide financial security for future generations, as well as for your own retirement. You will also want to figure out the least complicated and most beneficial way to accomplish the transfer of the business to other family members.
Handing control over to a family member might seem like a quick and easy solution for eventual retirement and to preserve the enduring future of your business. Family succession, however, comes with the same–if not more–challenges than passing over the business to an outsider or non-related business associate. The issues of effective communication, compensation, taxation, proper method to do the transfer, knowing the necessary documents that need to be drawn, as well as proper planning timewise, are all essential components to the successful family transition of a business. Berkley Oliver can help you transition your business to other members of your family. Our firm has the expertise to help you design a customized plan for the future leadership of your family-run business.
We would like to provide you with various tips to help accomplish family business succession planning. These are very general guidelines, not legal advice, and it is important to consult with an attorney knowledgeable in business succession planning who can help you navigate the various areas discussed below.
Decide on Who You Want To Transfer the Business To
The first thing you should think about is who or what entity you want to transfer your business to. Do your children want to carry on the family business? Do investors want to buy out your company? It is important to determine what your ultimate goal is in terms of the future of your business. You need to ensure that the person or company taking on your business cares as much about the business as you, and shares your goals.
Transferring the Equity of Your Business
The next thing to consider is how and in what form you want the assets of the business transferred. For example, if you want your business to succeed to your children upon your passing, you will need to determine how the shares of the business will be distributed among them. Further, you will have to determine if the shares are subsequently transferable or not. Such decisions can be highly complicated and require the assistance of experienced estate and business planning attorneys.
You might want to start by sharing your vision of your business goals and objectives. As a family, you should figure out together the expectations and needs for future income from the business for the family member retiring, as well as the objectives of the family members who will be taking over the future leadership and ownership of the company. As part of your communication, you will want to have an honest discussion with each successor about your perception of their strengths and development opportunities. You should also devise a plan to help successors acquire the knowledge, skills, or experience they currently might lack as far as the business.
Evaluate and Select Successors
Write a description of what each family member does, and identify the skills required to do the job. Discuss and assess each potential successor against their skill list and identify successors for each leadership position. Find out whether a successor plans an early retirement or does not have the desire to take on a leadership role in the business. If so, you will know to move on to another candidate.
Figure Out Valuation Issues
Before you decide to transfer your business, whether it is to family members, or to another business entity, you need to know how much your business is worth. How much equity and debt does the business have? Having the proper valuation of your business is essential to the successful transfer of your business, and to ensure ample retirement funds.
Figure out Taxation Issues and Update Family Estate Plan
Seek estate planning to help minimize taxes, transfer ownership, buy or sell interest in the company, and pass on company ownership to family members. Your plan might include gifting company shares to family members, establishing trusts, or providing employees a chance to purchase equity through an employee stock ownership plan. In sum, it is important to choose the appropriate legal structure for the transfer of your business (for example, a sale, gift, or partnership), as well as to consider the use of trusts or other estate planning tools to ease the transition.
Engage in Planning So You Have Plenty of Time to Implement the Plan:
It might take several years to implement both the people and financial aspects of your succession plan. You might want to devise a timeline for the transition and be prepared to adjust the timeline in the event a family owner becomes ill. Having a succession plan in place will help transfer ownership of your business to the correct people in the future and offers valuable benefits today. When you have a family succession plan in place, banks, clients, and suppliers have greater confidence in the stability of your business.
Business Succession Planning Documents
After you have determined how you want your business to be transferred, and who (or what entity) you want your business to be transferred to, there are a variety of documents that must be filled out in order to put your plan in place. You may need to have your attorney draft the necessary documents. The ability to minimize both income and estate taxes upon the transfer of your business, as well as many other considerations for the business, will govern exactly which documents need to be executed.
Reach Out to Our Skilled Business Succession Planning Attorneys Today
It is wise to familiarize yourself with state family laws in Kentucky regarding business transfers and succession planning. Since the laws are complicated involving business succession planning, you may wish to consult with an attorney knowledgeable in this field to help you navigate throughout the entire planning and transfer process. Consult Berkley Oliver to help ensure a successful transition of your business to family members.