When discussing family business stock, you might not be aware of all of your options. Some situations can even prevent transfers from happening, especially following a death. You want to offer your relatives something of value, and your hope is to have profits. How can you ensure that your family members receive their share?
There are many things to consider when planning for your family business. In this blog we talk about some of the items that Positively People looks for when transferring stock.
Include Your Retirement in Family Business Succession Planning
Many owners rely on stock revenues to plan for their retirement. Sometimes, those same shares are what you want to transfer to the incoming leaders. During family business succession, we go over how to phase out your shares for other investments. We help you look outside of the company for opportunities and find ways to offer an easier transition later.
Everyone loves gifts, and stocks should be sold to your children instead. This allows them to apply for financing while you save cash.
Give Voting Powers to Incoming Members
When you build a company, you definitely want to maintain control of it. This is also how leaders can stay on much longer than they should. Retaining stock in the company, even reduced shares, will still give you some control. Converting shares to non-voting ownership gives your children more incoming power.
Not only will you hand off a lot of the control and responsibility, but the equity as well. New directors will appreciate the added breathing room they have to make decisions.
Continuity Planning Should Include Contingencies
You may have heirs in mind, but people don’t always display the right attitude that you want to take over. What happens if you have planned for someone to take control without enough maturity?
At first, you should continue to move toward the goals your family governance sets. After all, they may take things more seriously than they let on. If it feels like they are not fit to lead, allow for ways of repurchasing shares. Or you can deposit their shares into a trust where you delay access to it until later.
Avoid Unfair Family Business Stock Amounts
It’s common to see family business owners gifting stock to children or grandchildren. However, you can’t realistically maintain this kind of generosity after more members of the family are born. Younger siblings could effectively become penalized for being born after the others. You could compensate with additional shares, but it could also feel unfair to older relatives.
One solution is to maintain a trust for all gifted shares to stay in. You may need to meet with a family business consulting firm to set equal amounts.
Create a Cutoff for Family Business Stock
Some families have multiple children from the same couple which can make stock gifts unsustainable. How can you possibly maintain an equal balance for amounts, shares, and for younger siblings?
At some point, you need to draw the line as to who receives what. That may require drastically reducing it below what the first few generations received. You might also need to find ways of offering incentives without giving stock. That may include exclusive positions or added benefits in specific roles.
Prevent Family Business Stock from Becoming an Argument
It’s natural for stock gifting to become a point of contention. However, it doesn’t need to stay that way with family business advisory services. Positively People can assist firms like yours in promoting improved unity and success. Contact us today to get started.
Learn more about Positively People Services in Family Business Consulting.