Life Disposition of the Family Business

Life Disposition
of the Family Business
Succeeding Generations
Fall, 1996

by Barbara Gill, CLU, ChFC, CFBS
& Dale J. Seymour, CLU, ChFC, CFBS
Seymour and Associates

Retiring from the family business?What does one do?Sell to other family members?Sell to an outsider?Perhaps retain the family business and gift portions annually to other family members.What about an installment sale or private annuity?Is an ESOP an alternative?What about charitable remainder trust?How does one structure the deal so that the buyer can afford to buy and the seller can afford to retire?Fortunately, there are many creative planning opportunities available to assist the family business owner who desire to create an exit strategy.Planning in advance becomes the key.

Without question, there are many choices to be made regarding business transfers during a lifetime.One option the family business owner always struggles with is whether or not to sell the family business to family members or an outside third party.In the event of structuring a sale with family members, several particular questions should be addressed.

First, are all of the family members interested in buying a proportionate share of the business?Secondly, should all the family members be involved in the business?If not, how do we treat those who don’t buy a proportionate interest?Should they receive a minority position in the business anyway?Of course, one could alternate the bequests for non-involved family members if sufficient assets are available. More…

Protecting Seniors’ Interests in a Business Transition

PROTECTING SENIORS’ INTERESTS IN A BUSINESS TRANSITION

Peter Berenson, CPA, PFS

Forman, Itzkowitz, Berenson & LaGreca

For seniors, transitioning their business to the next generation can be, in some ways, like teaching their child to fly from the proverbial family nest to independent adulthood.  During the growth and developmental years of both the business and the child, seniors typically nurture both with love and money and build emotional bonds.  Then, when they contemplate separation from each, the senior/father begins to assess the related risks.

Understanding business transition risks and how to protect against them requires a brief overview of the two basic transition types: management control and stock ownership.  These can occur simultaneously or independently, and gradually or instantly.  In other words, seniors can transfer daily and strategic management to the next generation while retaining ownership.  Or, they can transition some or all of the ownership to the next generation while retaining daily and strategic management.  Or, both types of transitions can occur simultaneously.  The major difference between the two types is that as long as seniors own more than fifty percent of their business they have the legal authority to grant and/or reclaim management control.  Once the fifty percent threshold is crossed, this legal authority is substantially diminished.  Nonetheless, while the degree of risk may differ with either type of transition, the nature of the risks is the same. More…