Tuesday, May 18, 2010

Resolving Family Disputes Over a Family Business

In a family business, business and personal relationships are intermixed and often times, hard feelings occur. Today and going forward, business succession planning for family-owned businesses is critical. The first concern for family businesses is how to transfer the family business to the next generation without tax liability (later article). The second concern is who should manage the family business as the new President/Chief Executive Officer. Parents often times find it difficult to pick, which son or daughter should take over the family business upon their retirement or death. It is a good idea for a business owner considering retirement to begin making critical succession plans. One of the ideas may be to slowly transfer the adult children into making more critical decisions for the family business. This enables the Parent(s) to determine, which adult child is the better leader and business person. The third concern is how to compensate adult children that are not active in the family business. By active, I mean that do not actively work day by day in the family business. If one adult child is expecting a profit's payment or bonus similar to owning shares of stock/membership interest than their interests contradicts the active adult child's interest. Going forward, it may be best to address this situation and what your concerns are. The key point is it may be better to have an adult child not active in the business inherit life insurance versus the family business. The purpose of this is to avoid family conflicts and create conflicts, which naturally will exists. A good part of estate planning is anticipating family conflicts that may arise and planning to avoid these conflicts.

In conclusion, business transfer planning is critical for family-owned businesses. Business and personal feelings get mixed up and family relationships may it difficult to make key business decisions. Good estate planning can help avoid family conflicts and disputes.

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