Law News and Tips
FAMILY (OR FUNNY) BUSINESS
As baby boomers have been growing older, there’s been a lot of talk about parents passing their businesses down to their kids. The funny thing is that, although I’ve seen some of that, more frequently, I see that the parents are selling their businesses to an outside third party. Those sales present their own issues, but that’s for another article.
Passing the business down to younger generations requires very careful planning. One of the first issues that needs to be addressed is whether the younger generation is even capable of running the business. Although politicians and pundits often complain about how estate taxes destroy family businesses, a number of studies have shown that actually families destroy family businesses. Since these deals often involve a buyout over time, the failure of the business can be catastrophic for everyone involved. There are ways to measure the skills of a younger family member and using that information form a succession plan with the possibility (no guarantees here) of success. But developing this plan requires time and careful attention to details.
If you can put together a viable succession plan, then the question is how to implement it. Family dynamics can bring catastrophic results. Children who are not involved in the business can feel cheated. The descendent taking over the business can take advantage of the situation for his or her own benefit. Simple misunderstandings can grow into huge, may be insurmountable, problems.
I personally know all of this from experience. Growing up, we weren’t even allowed to mention the other side of the family because of something that happened in 1918. Two brothers who worked together for years, even living next door to each other, were irrevocably alienated. Family business can be really tricky.
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