Preserving Your Family Business for Future Generations

family business, small business, succession planning, Illinois small business attorneyEstate planning poses unique challenges for family business owners. For one thing, business tax laws can be complex. For another thing, a family business involves family – passing on ownership to a succeeding generation can be emotional and contentious. Parents might have a favorite child, they might not be forthright about their business plans or they might be unwilling to pass on control. Without a succession plan, future generations might not know how to run the business or might give up on the ideals you worked hard to establish.

If you want your family business to survive, it is important to establish a succession plan early on. A recent study found that almost 70 percent of family-owned businesses only last a single generation. That is especially alarming given that family-owned businesses account for 60 percent of total employment and more than three-quarters of new jobs created in the United States.

Family businesses run the size gamut, from corporate behemoths like Wal-Mart to mom-and-pop stores to family farms. The complexity of your succession plan will likely depend upon the size and complexity of your business. But whatever your circumstances, you need a plan in place to preserve your business for future generations. Here are some common issues that need to be addressed:

  • Determine who will comprise the board of directors. A family-owned business does not have to be entirely family-run. Often, families might appreciate having an outsider’s perspective. Non-family board members may also help mediate family disputes. However, if your board has historically been composed of family members, and that is a tradition you want to continue, it is important to establish this in advance.
  •  Determine how a position will be filled. Deciding who gets what job in a family business can be rife with drama. Is the oldest child automatically next in line? Or will the decision be based on who is most qualified? To avoid unnecessary drama, set up a plan. Decide in advance who will make these decisions (the board of directors, shareholder voting, a third party, etc.) and on what grounds. Also, decide in advance how employees will be compensated.
  • Determine whether and how many shareholders to involve in day-to-day activities. Again this goes to how family-oriented you want your business to be. Do you want decisions to stay in the family? Or do you want to cede some control to non-family members? The success of your family business depends on having an established business structure.
  • Determine buy-sell agreements for shareholders. Your business will run more smoothly if you set parameters for how stock can be sold, to whom it can be sold, and how the stock will be valued. Setting clear parameters for stockholders will prevent unnecessary conflict.

These are only a few of the considerations to keep in mind when establishing a succession plan for your family business. If you want to give your business the best chance of continuing into the future, contact one of our experienced estate planning attorneys for guidance. We can assist those in the Naperville area.