Business Succession Planning
Succession planning for a family owned business is not just another moniker for estate planning. This is an important component of an overall estate plan. Succession planning involves structuring ownership of a business enterprise to permit it to pass intact from one generation to the next. Business succession planning is an important consideration whether the business is a regular corporation, an S corporation, a partnership, a limited liability company, a sole proprietorship, or a professional practice.
There is a concept in this country that accumulated wealth should be taxed at least once every generation. That concept has forced the sale of many family owned businesses where management devoted insufficient attention to planning for succession. Tax law changes, initially thought to be helpful, have proven to be of little benefit. Attempting to save taxes by skipping a generation and passing a business enterprise directly to grandchildren can be disastrous.
Retaining a business enterprise within a family is not always the optimal solution. Current business owners must consider the possibility that their progeny may neither desire nor be capable of succeeding to business management. In those cases, sale of the business or merger into a similar enterprise may be the appropriate solution. These transactions should be carefully planned in advance and, if necessary, a method of funding the buyout should be put in place. In a similar manner, buy/sell agreements between co-owners should be adopted and funded.
Advanced planning can achieve the desired results of retaining a business in the family while moving it to succeeding generations at affordable costs or transferring it to new ownership as efficiently as possible.
©2008 Ronnie C. McClure, PhD, CPA