Everyone who starts a business wants it to last a long time. In fact, many owners envision their business continuing after their own retirement or even into future generations. In fact, whether you own a small family business or a large corporation, It’s never too soon to give thought to business succession planning. As we know from experience helping clients form and transfer businesses, having business succession conversations now can avoid costly disputes and pain later on.
To enable successful transfer of any business, a number of factors must be considered:
- If the business has co-owners and one dies, will the ownership be automatically purchased by the other owner(s)? Where will the funding come from?
- Will the people now managing the business be the successor owners? If not, what training will be provided to the successor?
- If a partial owner of a business wants family members to be the successors, how will that work with existing co-owners?.
“A majority of family business owners plan to split their companies equally between their children. But what they’re planning could be a recipe for family conflict – and a poor outcome for the business,” correctly cautions Kent Bernhard in bizjournals.com. After all, one child might have made a career out of working in the family business, he points out, while other siblings may have different careers entirely. Despite that reality, Bernhard states ruefully, a 2018 study by Mass Mutual, nearly 60% of business owners plan to divide ownership of their business equally among their children.
At Geyer Law, by facilitating in-person or virtual family “conferences” to discuss these very sensitive business succession matters, our hope is to enable open discussion among future heirs.
Tools and tactics that can be discussed include:
- Re-capitalizing the business to create voting and nonvoting stock shares. (Voting shares are left to those involved in running the business).
- Using life insurance to “equalize” the inheritances (those children who are not involved in the business receive cash from the insurance proceeds)
- Giving children not involved in the business other assets as their share of the inheritance
It’s a common misconception that estate planning is for rich people, Pam Horack, CFP®, observes in thebalance.com; The truth is, it’s for everyone, she emphasizes. Here at Geyer Law, we’d add, “especially for business owners”.
– by Cara Chittenden, Associate Attorney at Rebecca W. Geyer & Associates