Statistics compiled by Forbes reveal that approximately 80 to 90% of businesses in the United States are either owned or controlled by families.
Other data reveals that only one third of these businesses survive into the second generation of a family and that only 10% of businesses make it to the third generation.
One of the reasons why businesses are not successfully passed between generations is lack of adequate estate planning. It is important to remember that there is simply no universal estate plan that works for every business, which is why options like online estate planning often does not work.
Instead, it is critical to carefully consider the various ways to pass ownership of a business between family members. Obtain the assistance of an experienced estate planning lawyer who can help guide you in creating the right business succession plan.
The following will review some helpful tips that you should remember when creating a strong succession plan for a family-owned business.
Consider Changing the Business Structure
If a business is structured as a sole proprietorship or a partnership, it is important to remember that these entities are viewed as comparable to personal assets of the owner and cannot be passed on. Instead, only business assets are capable of being transferred.
If your business is a proprietorship or a partnership, it might be a wise idea to consider creating a corporation instead, which can continue to operate after your death and avoid these potential succession problems.
Involve Your Family in Estate Planning Discussions
Some people attempt to avoid potential disputes by making decisions about a succession plan without the involvement of family members.
What this actually most often leads to is controversy following the business owner’s death about how the business should be divided. Instead, it is a much better idea to create a conversation among family members early on about your succession plan.
Even if you want a particular child to run a business after your death, that child might either lack the necessary business skills or have no interest in doing so. Instead, there might be another family member who is a much more reasonable choice to run your business after you are gone.
In some situations, there might not be a realistic, good choice of a successor to appoint to continue running your business. In these situations, it is often a better option to make a plan for how your business will valuated and be sold.
Directly Train Your Successor
If you expect a business successor to take over and successfully operate your business, you must adequately train that person to do so. Your family business succession planning will be much more likely to succeed if you directly work with your successor and teach him or her how to address the various business obstacles that commonly arise.
Speak with an Experienced Estate Planning Lawyer
If you or a loved one has questions or concerns about the estate planning process, including creating a succession plan for your family-owned business, you should not hesitate to speak with an estate planning lawyer. Contact attorney Jim A Lyon today to schedule a free initial consultation.