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SEPTEMBER 2012





Family Business Succession Planning: Transferring Control and Assets - Part 1

Bill Woods, GreensheetBIZ

As we discussed last time, since the family-owned business is often the most valuable asset the owner has in his or her estate, many factors must be considered in order to achieve the desired transfer and to do it in the most tax-efficient manner.

Two tools should be used in order to build a plan and to create a mechanism for selling the business when certain triggering events occur; 1) a buy-sell agreement and 2) a complete estate plan.

A buy-sell agreement comes into play when certain events occur- such as the death or disability of the owner, divorce, bankruptcy or even retirement. The buy-sell guarantees that there will be a market for the owner's stock when the event occurs - providing cash for the owner's estate. In a family business environment, a buy-sell can guarantee that control of the business remains with the surviving owners without any dispute from the departing owner's spouse or other heirs. This is especially useful when one of the owner's children is going to continue in the business since it can avoid arguments with children who are not active in the business.

A buy-sell can establish a mechanism for determining the purchase price. Whether this is a certain multiple of earnings or a fixed price that is re-evaluated on a regular basis, this can avoid "dueling appraisals" by valuation experts at the time of an owner's departure Grafted to meet IRS regulations, the valuation mechanism clause can also make dealing with the IRS a smoother process when time comes for reporting the event.

The buy-sell can be funded in a number of ways. Surviving owners can simply pay for the stock immediately, or through installments, if so drafted. The company can redeem the stock if it has available cash, or the business or other owners may purchase life insurance to fund the purchase upon the triggering event.

As stated in segment one of this article, this part is science, and it's best left in the hands of professionals who specialize in that area. Your team should include an estate planning attorney, accountant and financial planner.

See last edition for part one of this article. Reprinted from GreensheetBIZ,the twice-monthly newsletter for senior industry executives in the graphic arts, printing, publishing and converting industries. Subscribe today at www.GreensheetBIZ.com. Questions? TalkBack@GreensheetBIZ.com. William F. Woods, Jr., the author of this article, is an attorney-at-law and a GreensheetBIZ associate editor.

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