Making it easier for family members to buy your business

When preparing a business succession plan, you should keep in mind the various ways that passing your Massachusetts business from one set of owners to another may go wrong. For instance, you could plan to hand off your company to another set of owners, but may want to incorporate a way for your family members in the future to buy out the leadership regime if they wish. However, this may not be easy as you think.

According to Forbes, your business could end up growing much faster than you project it will after you leave the company. A greater profit margin would enrich the company’s wealth and make the operation worth a lot more than it was when you were running it. This puts your family members in a predicament if they want to buy the company, as the increased value of the business may end up pricing the company too high for your family to pay.

You can deal with this problem in a number of ways. If your family members have stakes in the company, you can assign them a share of the company wealth, ensuring that they would benefit from a rapidly growing business. However, if you prefer that your family contribute actively to the business and not passively benefit, you could also assign profits that depend on the effort your family members put into the company.

Allowing your family members to reap strong incomes from the company can provide your family with large enough sums that buying the company is no longer impossible. You can also dictate in your succession plan a buyout provision that sets terms for the buyout that your family members can realistically meet. According to TrustAdvisor, you can incorporate a right of first refusal in the succession agreement, putting your family members up first to try to buy the company if they wish.

These issues may involve complicated legal and financial matters, including questions of company valuation and succession rights, so do not hesitate to ask an experienced business attorney to help you out.

 

Archives

FindLaw Network