Compensation for Family Isn’t Always Fair

Compensation for Family Isn’t Always Fair

by John L. Ward, Ph.D.
Co-Founder and Principle of the Family Business Consulting Group

Next-generation successors in family businesses are wise not to be too concerned about justice in compensation — because they’re likely not to be paid what they’re worth.

Assume that one sibling becomes CEO and has another sibling in management and two others who are co-owners but not employed by the business. The CEO will be and should be shortchanged in two respects.

First, CEOs of most businesses, especially public companies, receive generous stock options that generate wealth for the CEO if the business’ value grows. Family-member CEOs usually don’t have that privilege. They already own or will own stock, most likely in equal shares with their siblings.Their parents carefully set up ownership that way.Stock options, even if technically feasible (and they are very difficult to construct in a private company), create unhealthy equity differences. More…

Family Limited Partnerships: An Overview

Family Limited Partnerships:
An Overview

FLP terms are very flexible, and can be changed or terminated by the general partners, as opposed to irrevocable trusts which require heavy litigation to amend.

In a family business, the company’s financial challenges can also become the family’s financial challenges.When a business owner dies, the family inherits all his/her assets, including the highly valued (hence heavily taxed) company. All too frequently we hear of a family that has sold off the company to pay crippling estate taxes.

Fortunately, financial estate planners have come up with an effective strategy to counter this problem: the Family Limited Partnership (“FLP”).Although this structure has some technical complexities, the concept is very simple.This article illustrates some of the benefits of this strategy so that you can make informed decisions about the future of your business and your family’s financial well-being. More…