The attorneys at Bauer & Associates regularly assist family run businesses. One of the most common issues for owners of such businesses is to come up with a “business succession plan” – who will own and run the business in the future? Sooner or later, every owner wants or needs to retire. A complete succession plan addresses many issues including what is to happen to the business upon death, retirement, or sickness, who will manage the business, how ownership will be transferred, and the handling tax issues, to name a few.
Family business owners need to consider succession planning prior to any significant event that occurs. The “exit strategy” should be set out early on in the business and should be included in any business plan for a company. Owners should retain the services of an attorney, accountant, and financial advisor to assist them in this planning.
Family members should be involved in the “process” to determine their interest in the business and who is the most capable to take over. Often family members do not like to discuss topics such as the death or retirement of their parents, so involving qualified third parties may make the process more effective. While an owner may believe that the “first born” should “lead the company”, the owner needs to make sure that the proposed successor has the desire to take such a position, has the same business culture outlook as the owner, and that the person has the business acumen to be successful in the management of the company.
One should consider the “structure” of the business when thinking succession planning. There are many options – corporation, limited liability company, or partnership. By owning the business as an entity rather than as a sole proprietorship, an entity will often give the owners more options with stock or interest transfers and tax consequences. An owner can give ownership to all family members and management authority to only certain family members. Alternatively, the owner could leave the entire business to one family member and make other financial arrangements for the others. Should no family member be interested in the business, it is possible that selling the company may be the best choice for the owner and the family.
Our office can give insight and advice to family owned businesses. We regularly counsel families and owners of companies in planning for the future. Please contact us should you have a need in this area.