One of the most common ways to create intergenerational wealth is through family businesses and enterprises. However, there’s a common adage about family businesses and enterprises — the first generation starts the business, the second generation grows the business and the third generation loses the business.
Unfortunately, this saying often turns out to be true whether the business ownership transition is to a family member, a trusted employee or a third-party. You need a proper plan if you want to maintain your intergenerational wealth.
5 Tips for Family Business Succession in Ohio
Step One: Plan Early
Our Cincinnati-based law firm often becomes involved in the estate administration and transition process of a family-owned business if the family business failed to plan early enough in advance. Whether it is transitioning to a family member, transitioning to a trusted employee or purchase by a third-party, it is important to plan well in advance of your anticipated transition.
Step Two: Determine if the Next Generation Can Take Over the Business
One of the biggest disagreements with family-owned businesses comes to whether the next generation is ready or capable of taking over the business. Many business owners feel a sense of obligation to transition the business to the next generation but sometimes the next generation is not able, willing or capable of taking over. As part of your planning, you should decide early in the process whether you want to transition the business to the next generation. Make sure this becomes part of your family business planning even if the answer is no or I don’t know.
Step Three: Plan and Execute Proper Business Transition Legal Plans
The next biggest failure is not the failure to plan, but the failure to execute the plan. Successfully executing and implementing the succession plan for your family business means executing the proper transition planning documents, shareholder agreements, buy/sell agreements and corporation documents. Having the proper business transition plan in place and executed will ensure the successful transition of your family business.
Step Four: Planning for Disability of Owners
One of the most overlooked aspects of family business transition planning is planning for disability of an owner. People live much longer in today’s age of advancing technology and medicine. In fact, you are more likely to face a medical event resulting in disability than you are to experience unexpected death. Family businesses need to plan for the event of disability of an owner. For instance, will the disabled owner’s share in the company be bought out upon disability? If so, for how much and how will the ownership shares be valued? Will the disabled owner continue to receive distributions from the company during their period of disability? Will the disabled owner receive payout from a disability policy owned by the company?
Step Five: Review the Plan
Regularly review transition plans and speak with qualified counsel regarding succession planning to meet the changing needs of the family-owned business. What makes sense today may not make sense in 10 years.
For More Information
Please contact the Business and Corporate Attorneys at Aronoff, Rosen & Hunt, LPA at (513) 241-0400. You can also use our contact form to schedule a time to discuss your probate and estate questions and concerns. Our Business and Corporate Attorneys look forward to speaking with you!