Some family-run businesses may not give much thought to succession planning. Many proprietors assume that after they die, their heirs will simply take over and manage things. As reported by The Business Journals, approximately 60% of owners surveyed disclosed they would divide their companies evenly between their heirs.
Siblings may, however, feel resentment toward each other when a business falls into their hands. An heir who devoted significant time to a family-owned enterprise may believe that he or she should have inherited a larger portion than siblings who devoted much less time.
Transferring business ownership before death
Some heirs may have no desire to manage an inherited company, but a business owner may possess a good understanding of who will best serve the needs of the enterprise. In this case, options exist to transfer an ownership interest before death or illness requires it. Restructuring a private company and issuing stocks represents one way to proactively acknowledge the next legal owner.
A successful transfer may require hands-on training to prepare an heir to assume control. He or she may need to begin fostering relationships with customers, vendors and suppliers. Open communication may overcome employee concerns of nepotism playing a role in an heir’s promotion.
Using a trust and financial accounts to designate future ownership
Estate planning may designate a particular heir as a sole beneficiary of a business, and the company’s assets may transfer to a trust. As described by Bankrate.com, an owner may also list heirs as beneficiaries on financial accounts so that cash or stocks transfer upon death without probate.
An effective succession requires a predetermined plan for an enterprise to continue with a limited transition period and minimal complications. Several options exist to achieve this. Owners who prepare now may not need to worry about a business interruption or failure to meet clients’ needs.