A business can do more than support a family during the lifetime of the founder. It can be a legacy that continues to provide income and employment to children and grandchildren.
To successfully pass a business to the next generation of ownership requires careful planning. Failing to plan can have devastating consequences. Many businesses fail after the retirement or death of the person who started the business.
Creating a business entity
Creating a business entity is important to protect your personal assets if your business is sued. Many business owners choose a limited liability company (LLC) or family limited partnership (FLP).
Creating a succession plan
To minimize disputes, you should have a clear line of succession for your business, including:
- Deciding who will manage the business
- Deciding how decisions will be made
- Deciding how to share profits among family members
Planning for taxes
A large tax bill could force family members to sell the business It's important to start planning as soon as possible to minimize taxes. Some ways to minimize taxes include gifting a portion of the business each year, and taking out a life insurance policy to help pay taxes at the time of your death.
Planning for the unexpected
No one expects that a divorce or a family dispute will lead to the dissolution of a business. However, disputes happen and they can affect the business. A buy-sell agreement can help ensure that a business will survive.
With good estate planning, the business you built can continue to create value for your children, your grandchildren and beyond.