Business succession plans take a great deal of thought, as there are several ways to plan for transferring a family business. So how do you know which plan is right for you? Let’s explore some important considerations.
Businesses run on paper. Lots of it. Stationary letterhead, marketing materials, and the accounting books are the papers that may first come to mind. Nevertheless, don’t forget the all-too-often ignored “company books” - these provide the foundation and the structure of the business itself.
Considering the form and structure of the business is vitally important when planning to pass the business to the next generation. In addition, you should be mindful of its current operations and even the value of the business.
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 the 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 may not have considered its application in terms of your own business and the family ownership.
For many family-owned businesses, this kind of structuring can be a first step in developing an overall succession plan without finalizing the precise terms of the succession. But before going too far down the planning path, be sure to consult with competent legal counsel, as this is definitely not a do-it-yourself project.
For more information about business succession planning, or to discuss your other estate planning questions, contact us at Peak Legal Group.
Reference: The New York Times (February 15, 2013) “Modern Safeguards for a Family-Owned Business”