NO family wants to build a business only to see it disappear when family members get tired of running it. But let’s face it, what that business really represents is a large majority of the family’s wealth.
Business succession plans take a great deal of thought, as there are several ways to plan for transferring a family business. How do you know which plan is right for you? Let’s explore some important considerations.
Businesses exist on paper. Lots of it.
Stationary letterhead, marketing materials, and the accounting books are the papers that may come to mind first. Nevertheless, don’t forget the all-too-often ignored “company books!” They provide the foundation and the structure of the business itself.
Considering the form and structure of the business can be vitally important when planning to give the business to the next generation. In addition, you should be mindful of its current operations and even the value of the business.
None other than The New York Times took up this issue in a recent article titled “Modern Safeguards for a Family-Owned Business.” The article offers an excellent introduction to the time-honored idea of a holding company. In short, a family can own a company by owning the company that owns that very company. Did you follow that?
Said another way, while professional management can take care of the day-to-day operations of the business, the owning family can come together to exercise control over the higher entity – the holding company.
If you’re no stranger to corporate structuring, then this is a familiar idea. Regardless, you never may have considered its application in terms of your own business and the family ownership.
For many, this kind of structuring can be a first step in an overall succession plan for the business without finalizing the precise terms of the succession. Be sure to consult with competent legal counsel, as this is not a do-it-yourself project.
Reference: The New York Times (February 15, 2013) “Modern Safeguards for a Family-Owned Business”