by Lucie Shores

Created on: January 02, 2009   Last Updated: January 09, 2009

Ultimately two issues can thwart the best laid plans of a family business owner: taxes and family discord. No one wants to create friction among family members by bringing up the difficult subject of succession. Unfortunately, the longer one waits, the more difficult it becomes when the subject is passing on the reigns of a family business to one or more children. According to experts, about one third of all family businesses survive the transfer from the first generation to the second. Of those, fewer than 50 percent survive the transfer to the third generation. The single largest reason for this is a preferrence for not clouding family relationships by appearing as if business is more important than family issues. However difficult, that is exactly what one generation must teach the next. If the best interests of the business can be shown to support the best interests of the family, then value can be more easily defined to everyone's satisfaction.

The problems of succession and their solutions revolve around management, taxation and ownership. The job of the current owner is to prepare personnel to take over. Determine who the qualified members of the family are who have shown an interest the work and understand the business. Usually, one leader can spot another and there is always one who is better suited to carry the torch. The problem remains to treat others fairly in accordance with a variety of factors. How can the value be allocated and passed on? Who will participate and how? Who controls business decisions and has more votes? If an greement can be found by a family who allows management to be consolidated, half the battle is won.

Preparation of those who will own the business means education in financial obligations and legal advice regarding trusts, investments, stock and other assets. The law is clear, but every situation is slightly different and every business has different potential. Even though business law in most states is similar in terms of requirements, when ownership and control are not clearly defined, the failure of a business can result. Such a loss can come as a surprise to family members who simply needed clarification in order to keep family and business interests in perspective.

Preparation of the business itself will preserve it from liquidation through taxation. At the time of succession it is better to have an accurate accounting of expenses, operations and liabilities than a reserve of high value assets or cash representing taxable

• 1
• 2
• Next Page >>