Passing Down <br />the Family Business

Passing Down
the Family Business

Starting your own business is more than opening the doors to a building, selling goods or services, or making money. Of course, it’s all those things, but it’s also investing much of yourself into creating something meaningful and lasting.

Most likely, you’ll want to keep your hard work in the family. That’s why it’s important to start thinking about transferring ownership early. The sooner your children become accustomed to the processes, rules, and routine of running a business, the better.

Why it’s good to transfer over time

When shifting who’s the boss (or who is the “owner”), it’s better to give your children small pieces of responsibility over time, rather than dumping the entire business on them. This allows them to ease into their comfort zone, and you can monitor their progress, giving advice and guidance along the way.

You can also transfer partial interest and keep the majority of your voting shares, meaning all the major decisions will still be in your hands. A gradual, group effort is more effective.

Why?

When you give away something as lofty as an entire business in one chunk, your children won’t have the benefit of working up to their ownership. They may not feel invested or have a desire to stay and run the company, leaving all you’ve worked for to deteriorate, or to be sold to someone outside the family.

Preventing sibling rivalry

When handing down your business to your children, it’s advisable not to relinquish all your shares, especially your voting shares. In fact, you can give your children 99% of the company in non-voting shares, but retain 1%, or all of the voting shares in your control. This way, you can observe how thing are going, while still having the final say.

Siblings can also become resentful of one another. A child who takes over the business and is responsible for growing wealth while their brother or sister is absent may become resentful. Placing a “call” and “put” system on company shares is an effective way to make sure there is balance in the family and your business.

If the child responsible for running the business feels they are growing the business for absentee owners, they can “call” the absentee sibling’s shares, meaning they can buy the absentee owner’s shares or “freeze” their value. On the other hand, an absentee child who feels the company is mismanaged or the company is not distributing profits/dividends has the option to “put” their shares, ultimately forcing the controlling sibling to purchase their shares.

If this sounds like a headache, it may be in the best interest of you and your family to bestow the business on only one of your children. This may seem difficult, however, some people are more business-oriented than others. To resolve any anger this may cause your other children, develop an estate plan that divides assets so each child receives something that suits them and their individual strengths.

To learn more about how you can transfer your business, contact Stuart Boehning at spb@hereforlife.com or 765-742-9066.

Disclaimer:
The content of this blog is intended to be general and informational in nature. It is advertising material and is not intended to be, nor is it, legal advice to or for any particular person, case, or circumstance. Each situation is different, and you should consult an attorney if you have any questions about your situation.

CPA or Attorney: What Difference Does It Make? A Big One.

The roles of CPAs and attorneys, and why you need both 

Timid about your taxes? If you have both a CPA and an attorney, there’s no need to worry. CPAs and …