A family business could very easily be the most valuable asset in someone’s personal portfolio. It is common for those who inherited, purchased or started a business to aspire to pass the organization to someone they trust when they retire or they die.
Arranging for the transfer of a business to new ownership and leadership can be a complicated process. There are certain steps that an individual can take to improve their chances of success.
Making decisions about leadership and ownership
It can potentially be a major mistake to decide that the family member assuming ownership of a business is also the best person to operate that company. Nepotism can destroy an organization from the inside if the person taking on a leadership role does not have the right attitude, abilities and personal experience. In some cases, a business owner must arrange to transfer ownership to one individual while simultaneously helping a successor take over their position operating the organization.
Valuing the company and addressing issues
Proper business valuation can play a major role in a company transfer. The overall value of the company can influence the best strategy for conducting the transfer. Additionally, the valuation process can help someone recall issues that they have attempted to address at the company and reevaluate long-term organizational goals. If there are debts or other issues that could affect the company’s worth or the transition to new leadership, the current owner may want to make a point of addressing those issues before they arrange for the new owner to take control.
Executing transfer documents
There are typically three different ways of transferring ownership of a business to a different individual. In some cases, people can transfer the business as a gift. Doing so is very likely to trigger gift taxes, as any gift worth more than $18,000 is subject to federal taxes. People may also want to offer a buyout, possibly by offering private financing. Someone can slowly purchase equity in the business from the current owner. The owner can also arrange a partial sale to a new owner or multiple owners.
Each of these options has benefits and drawbacks. Occasionally, people may transfer ownership of a business to a trust and then include instructions about who has an interest in it after their passing or retirement. Someone can also include a business as an asset in their will if they intend to leave it to one or more specific beneficiaries.
Proper research and appropriate legal documents are crucial for an effective transfer of business ownership. Those who understand what the process entails can more easily arrange for someone else to become the new owner of their family company.