Rules and Regulations You Need to Know
No matter what size, passing down a family business takes thought and care. A smooth transition includes planning as well as understanding general rules and regulations, which have mostly to do with taxes. Enlisting the help of professionals can also go a long way in optimizing the handover. Here are some things to know when preparing for a successful family business transfer.
What is considered a family business?
A family business – or family-owned business – is one that’s owned by two or more family members. It can also mean that the majority of the ownership is controlled by the family. Family can be related by blood or marriage.
What is family business succession planning?
Family business succession planning is an excellent step in passing down a family business. Simply put, succession planning means looking at roles over time, including leadership, and preparing individuals for taking on those roles in the future. It also is a tool to lay out how it all looks throughout the period of transfer (or succession).
Family businesses run into roadblocks, often because there are many personal and family decisions that still need to be made in order for the planning to begin. Many families find success when enlisting the help of experts. This includes estate planners, financial experts, management consultants, and more.
It’s crucial to remember that preparing the next generation typically takes years. You’ll want to hand over the reins slowly. It has also been the general business consensus that it’s best to hand the lead to one person instead of a group. Honoring all members of the family with the value of a business can be done in a variety of ways, including non-voting shares, voting shares, or other key positions.
What key rules and regulations do I need to know when passing down a family business?
Each situation where a family business is passed down is going to look unique. It isn’t necessarily about key rules and regulations (unless it has to do with taxes) as much as it’s about having the proper documents and contracts in place. Some of the tools you’ll likely consider are:
- Estate planning – This covers shares of stocks, estate values, and more.
- Legal transfer documents – You can pass down your family business via sale, gift, or partial sale. Financial experts and certain types of attorneys can help you minimize the tax impact.
- IRS rules and regulations – Your main source of rules and regulations regarding the business transfer are going to involve the IRS. You can find many of these on the business section of their website
The real key to passing down a family business is planning
Successfully passing down a family business is not always easy. That said, when approached with a lot of care, it increases the chances of a business living on with new family members at the helm.
Many experts – including those who have gone through the process themselves – have weighed in. Their common tips for success are:
- Take care in choosing family members for future roles
- Have a clear, organized succession plan that transfers responsibility incrementally
- When it’s time, let the new leader step in without over-meddling
- Enlist the help of professionals to assist with documents, planning, rules, and regulations
Passing down a family business is a wonderful endeavor. When done right, family can enjoy having a company within their estate for years to come.