Planning to Pass Your Business on to Family Members
Families run the vast majority of small businesses. The question is whether these businesses will survive the first generation of owners.
The succession plan is necessary in a large public Corporation. Some recent legislation has made this even more so as the Government has sought to protect the interest of investors by more closely monitoring the business practices of Corporations. Yet, in the family owned business a good succession plan may be even more important. Every single element of the idea of succession planning applies to the family owned business. There is a need to identify and groom replacements for key positions.
There are other factors that make succession planning in a family owned business even more critical. When a loss occurs in a large Corporation, it might trigger some political infighting as executives vie to move up the ladder. This is certainly damaging to an organization and the succession plan is partially designed to prevent just this from happening. In a family owned business, this political infighting is taking place not between competing executives, but between family members. The personal implications of family infighting can be devastating not only to the business, but to the family structure as well.
Also, the death of a key person in a family business may trigger estate and legal issues that may ultimately spell the doom of the business even if the family members agree on the internal chain of command. Taxation problems and probate courts can force the family to sell the business even if they, and the deceased family member, did not want this to happen.
The succession plan of the family owned business must include provisions for the orderly transfer of ownership and the handling of taxation and estate issues as well as the plan for the naming and training of replacements in the table of organization. These issues might be very complex and the help of estate planners and attorneys will often be needed to identify the possible complications and insure that a single death of a family member does not mean the death of the business.
Many family owned business concerns have opted for establishing a Limited Liability Company (LLC) or other type of legal organization as a result of their succession planning. While many financial experts recommend this step, many families do not wish to take this step. However the issue is resolved, one thing is certain. Any business that does not make succession planning part of its overall planning process is putting itself at a great and unnecessary risk. This is true of any type of organization and never truer than in the case of the family owned business.
Learn more about succession planning at UFCAmerica.com.
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