Matter & Substance
  August 9, 2017

Keeping your family business in the family

A successful family business can provide long-term financial security for you as its owner, as well as for your loved ones. To improve the chances that your company will continue to benefit your heirs after you're gone, take steps now to keep it in the family.

Staying in-house

Careful estate planning can ensure that a business continues to benefit family members and that ownership of the business isn't diluted - at least until the business is ready to accept outside investors. 

For example, a well-designed buy-sell agreement can prevent owners from transferring their shares outside the family, while providing the liquidity they need to exit the business. And prenuptial agreements can prevent married owners from losing a portion of their shares in a divorce.

Trusts or other mechanisms can also restrict the ability of your heirs to transfer shares. If shares are held in trust, however, it's important to include mechanisms for providing beneficiaries with a say in the business's affairs - particularly if they work in the business.

For instance, the trust agreement might give some or all of the beneficiaries control over how voting and other ownership rights associated with the underlying shares are exercised. Or, if the beneficiaries are minors or otherwise not ready to assume this responsibility, these rights might be exercised by a trustee, advisory board, or other fiduciary (with or without input from the beneficiaries).

Considering many strategies

These are just a few broad concepts to think about when considering how your business fits into your estate plan. We have worked with many of our clients to develop succession strategies, including gifts and sales to family members and sales to company management. These strategies involve important business and tax considerations, and some may become more or less appealing as time goes on and you close in on retirement. Let our business tax team discuss your best options for now and in the future.