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Caring For Generations

Will You Plan to Transfer the Business Itself, or Only its Value?

On Behalf of | Jun 14, 2022 | Estate Planning

“To transfer or not to transfer?” is not really the question facing business owners. Even entrepreneurs who envision continuing to run their businesses until their last day on earth know the day will inevitably arrive when their business changes hands in some manner. Truth is, whether you own a small family business or a large corporation, it’s never too soon to give thought to business succession planning. At some point the founders or current owners of any business will be exiting, either by choice – through retirement in order to move on to other endeavors- or because they are forced to exit (by incapacity or death.

What is the question, then?

There are two elements inherent in any for-profit enterprise – control and value. Is the intent to transfer either of those or perhaps some combination of the two?

Issues to be explored:

  • Will transfers of control take place as a gift to the successor(s) or through a sale? This question involves important tax and estate planning. If a co-owner or employee is to purchase the business interests, where will the funding come from? On the other hand, if the owner plans to gift business ownership to family members, how will that work with existing co-owners?
  • Do owners wish to treat their children as equal heirs to their business interests? A 2018 study by Mass Mutual revealed that nearly 60% of business owners plan to treat their children equally,ut, perhaps only one of the children is interested in a career in that field. Siblings might have their own business and life plans.

By facilitating in-person or virtual family “conferences” to discuss these very sensitive business succession matters, our Geyer Law attorneys hope to clarify the questions so that business owners and their prospective heirs can understand the possible courses of action to pursue.

Tools and tactics that can be discussed include:

Passing on business control: Re-capitalizing the business to create voting and nonvoting stock shares. Voting shares are left to those involved in running the business.

Passing on business value: Using life insurance to “equalize” the inheritances (those children who are not involved in the business receive cash from the insurance proceeds) or leaving other assets (real estate or investments) to children who are not going to be involved in the business.

“To transfer or not to transfer?” is definitely not the question.
Business owners must ask themselves: When the time comes that I want to – or that I am forced to – stop owning my business, am I planning to transfer control or value?

– By Rebecca W. Geyer