Building a business from the ground up and making it successful is not easy. Unfortunately, no matter how much effort you put into it, you will not be able to stay in charge of your business forever. What if you want to retire and take a break? What if you get sick and end up unable to do your job?
In such a situation, if you don’t want to sell it, it might be wise for you to transfer the business to a family member, but you need to do it right.
For starters, you will have to decide which family member is willing and capable of becoming a business owner. Then, you need to discuss the future of the company with them. Lastly, you must legally transfer the ownership.
As morbid as it sounds, you also have to prepare for the event of your death. It’s best to consult a professional and formulate a clear, detailed will. Then, talk with your potential heirs to ensure they will be able to take over your business. Will they need to find out how to get inheritance loan, or can they manage on their own? Make them aware of any debts, claims, or liens decide on you might have on your company, and ensure there will be no legal doubts about the ownership.
Below, you will find the ultimate guide to transferring the ownership of a company. Read on and protect your legacy for the next generations!
Which Family Member Should Run a Business?
Each company needs a leader, and a family-run business is no exception. This is the person who runs the enterprise and makes all important decisions. In some cases, it is the founder of the company. In others, it is the oldest family member. Sometimes, however, this role is assigned to a younger person.
If you want to transfer a family business to the next generation and avoid losing money, you need to choose the right person for the job. There are many factors you have to consider, including experience, qualifications, passion, and vision. In general, there are five kinds of people who could be in charge of your business:
- Founder/Senior Partner – this person started the business and made it what it is today. They are very experienced and know everything about the company’s operations.
- Second Generation – this refers to the children of the founder. They are most likely to inherit their parent’s passion for business.
- Third Generation – these are grandchildren of the founder. Usually, they are still in their early 30s. However, they have plenty of time to become an expert in running a business.
- Fourth Generation – the great-grandchildren of the founder are eligible for this position. They are usually still teenagers or in their early twenties, so they still need to gain education and experience.
It is up to you to decide who is the best choice for the job. However, make sure that your pick does not harm your company’s finances; some people are simply not fit to be business owners, no matter how hard they try.
Discuss the Future of the Business
Once you have chosen the person who will run your company, you need to make sure that they are willing and capable of doing it; besides, check if their vision agrees with yours.
Make sure that you and your chosen successor agree on the following things.
- Who will take care of the day-to-day operations?
- What is the structure of the business now? Is there a managing director or CEO? Is there a board of directors or other top management positions?
- Will there be any changes in the company’s structure?
- Who will make the final decisions regarding hiring new employees, firing current ones, and making important business decisions?
- Do you want to keep the current employees? If yes, who? If no, why not?
- Do you need to hire new employees? If yes, who? If no, why not?
- Are there any plans for the business that you would like to share with your successor?
If you neglect to discuss these things, there is a high chance you will end up disappointed with your successor.
Transfer the Ownership of the Company to the Person of Your Choice
You can transfer the ownership by setting up a grantor retained annuity trust, structuring an installment sale to a grantor trust, and transferring your company shares.
This is a complicated process, and it is not recommended to do it on your own. Instead, it is better to hire a professional service that can help you with the process. There are many such service providers who can assist you with the legal aspects of the transfer.
Make sure that you choose a reputable service and discuss your case with them. If they agree to take it on, ask them to send you a quote and schedule an appointment. You should also make sure you understand all the process details and ask any questions that might come to mind. By taking this extra step, you can ensure that your transfer will be successful and legal!
To sum up, there are many reasons why you might want to transfer a family business to the next generation. However, you cannot do it alone. Fortunately, you can hire a professional service to handle the legal aspects of the process. The best thing that you can do is find an experienced family business lawyer in your area.
If the transfer is successful, you will be able to enjoy your retirement without any worries. To avoid losing money in the process or destroying your legacy, you need first to discuss important aspects of the transfer with your chosen successor. The more you know about what they have in mind, the better prepared you will be for the future.