Form a Family Limited Partnership

Form a Family Limited Partnership

The University of Connecticut
by B. Patrick O’Donnell Jr., J.D., L.L.M., C.L.U.

For owners of family businesses, the issue of succession invariably becomes a terrible dilemma: How to transfer assets to the next generation while simultaneously maintaining controlover major decisions and avoiding crippling estate tax liabilities.

Growing numbers of owners are discovering a suitable answer in an estate and financialplanning technique known as a Family Limited Partnership (FLP). In an FLP, control lies withthe general partners, who can have a tiny equity ownership (as little as 1%, although 5% is morethe norm) while still retaining control and deciding how much partnership income goes to thelimited partners. The general partners are the decision makers and the limited partners hold mostof the equity. More…

Valuing the Family Business

Valuing the Family BusinessNortheastern University

Family Business Quarterly
by Chris M. Mellen, ASA

Paul Phoenix, successful owner of Phoenix Electronics, Inc., sees the potential for growth in his company, but needs additional funds to finance that growth. He currently holds a 75% interest in Phoenix, with his brother owning the remaining 25%. Paul has given consideration to gifting some shares to his children, as well as to establishing an employee stock ownership plan (ESOP). However, he has been approached by several interested investors to buy equity in Phoenix Electronics. Banks have also expressed a willingness to loan him additional capital. As a result, his advisers have suggested that a formal appraisal of the business would be needed to address all these situations. More…