Planning with the end in mind. By Jeremy Graber, Partner Foulston Siefkin LLP
Consider the following all-too-common scenario:
What would happen to your business if you were unexpectedly gone tomorrow?
Jack and Jill own and operate their family business here in Topeka. They have three adult children: Tom, Dick and Sally. Tom stayed in Topeka and worked in the family business all of his life; however, Dick lives in Boston and Sally lives in Los Angeles. Neither Dick nor Sally has an interest in the business. Jack and Jill want the business to continue with Tom in charge but want to treat all of their children fairly when they are both gone. Their life’s work—and wealth—is in the business. How can they treat their children fairly, while also keeping the business going and avoid conflict between their children? If Jack and Jill failed to make a business succession plan, Tom, Dick and Sally would each inherit a third of the business. Dick and Sally may want cash, and may force their brother, Tom, to accept a fire sale price for his share of the business. Consequently, the business would be gone, and the siblings may never speak to each other again.
Closely held businesses and family farms involve a number of unique characteristics and considerations. A successful succession requires many issues to be considered, including: who will be the successor(s), how, when, and in what manner will such individuals or employees become owners, how to protect or compensate passive family members. Practical problems are frequently faced in the business succession context. Contentious disagreements can arise not only between active family members regarding business decisions, but even more so among Passive Member: active and Not involved in the business passive family members. These Active Member: disagreements Involved in the business can be fueled by a perception of an unfair distribution of the parents’ estate or inequitable lack of control.
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TK Business Magazine