How Can You Determine Who Inherits the Family Business?
If you own a family business, one of your primary long-term concerns should be how to pass the business along to your family when you’re no longer part of it. A frequent hurdle to planning the future is deciding who should inherit the family business and how your family will run the business without you. When you put a business succession plan in place as part of your estate plan, your attorney works with you to address those concerns and ensure continuity of your family business.
Statistics indicate that 70% of family businesses fail or are sold before the second generation takes over, which reflects lack of planning for business continuity. For a family business, the risks of not having a succession plan are considerable.
In addition, if something unexpected happens so that you cannot run the business even temporarily, who will handle day-to-day management and operations? How can your family keep the business financially viable? What happens if family members disagree about who has all the important responsibilities and authority? Those are just examples of some of the many critical issues that can arise. Your business succession plan covers those contingencies too, in addition to providing for inheritance of the business.
Evaluation of Family Member Interest and Contributions
Future viability of your family business depends on the people in charge having more than just an interest in benefitting financially. Managers need to have abilities and skills, as well as an interest in running the business.
In view of that requirement, an important task in determining the future of your business in the family involves making an objective assessment of the interests and abilities of family members. Evaluating your family members from this perspective helps you decide their roles in the future of the business.
When you create a plan for the future of your business, you can define each family member’s role in any way you choose. What matters is that you define it — by putting a business succession plan in place. You are in the best position to determine what it will take to keep the business running and to assign roles.
If some family members have no interest in the business or ability to participate in management, you can define their roles accordingly. In some cases, providing for outside management, financial, or other support will be an important part of your plan.
Leaving decisions about the future of your business to your family members could have disastrous consequences. It can even lead to family disputes that disrupt both the business and family relationships. In this way, business succession planning avoids family disputes in much the same way that estate planning avoids family conflicts.
Consideration of Future Family Contingencies
In your succession plan, you can provide for future members of your family, such as grandchildren who have not yet been born. You don’t need to assign them specific roles, but you can provide that they have an opportunity to participate or benefit financially from the business.
You can also protect the family business against risks from family relationships, such as claims from divorced or divorcing spouses of family members. If you don’t anticipate those possibilities, your business could end up entirely or partially controlled by people who are not even part of the family.
While you should provide for some family contingencies in your succession plan, remember that the plan is not permanent. If your family circumstances or your goals change in the future, you can revise the plan to reflect the new situation. But since it’s not always easy to remember to update your plan when changes occur, you should address common foreseeable possibilities when you create the plan.
Assessment of the Business Structure
Another important aspect of business succession planning involves determining the right structure for the business when family members assume responsibility for operations. While your present structure may serve you well, it may not be the best structure for the future and the roles you define for family members.
Your plan may include changing the structure of the business when family members inherit it, to accommodate specific needs for management, operations, governance, and strategic decisions. A business structure change also may be necessary for tax and estate reasons, to prevent your family from facing an untenable taxation situation after you pass away.
Are You Ready to Develop a Family Business Succession Plan?
There’s no good reason to delay developing a family business succession plan, including deciding who will inherit the business. There actually are many compelling reasons why you should have one. When you work with an experienced attorney who knows how to plan for the future of a family business, your lawyer will guide you through the process step by step, addressing all the important matters that your plan should cover.
Attorney Shane Peterson works with business clients — including many with family businesses — on a wide range of matters that are integral to running a business and planning for the future. Shane’s knowledge and experience in business law and estate planning provide him with an unusually well-rounded perspective in assisting his family business clients with succession planning.
Shane understands how critically important business succession planning is for a family business. He also knows it can seem overwhelming for a business owner to contemplate the future of a family business. His individualized, client-focused approach puts clients at ease and gives them full confidence that their interests and goals for the family are the foremost concerns.
Schedule a Free Consultation to Talk with an Experienced East Valley Business Succession Planning Attorney
At Peterson Law Offices, we have a commitment to providing high-quality legal services at affordable prices. Your first consultation is always free of charge.
We welcome inquiries from clients throughout the East Valley, including Queen Creek, San Tan Valley, Gilbert, Mesa, and Chandler. Schedule your free initial consultation by calling 480-878-5998 or using our online contact form.