Passing the family business to the next generation

Let's say it's time for you to retire. You've built up a successful business, and you want to pass it along to the next generation of your family. What problems do you foresee? What are some recommended solutions?

Two of your children have worked for the company, and you want them to continue. One hasn't and is not involved with the welfare of the company.

You want the business to survive, family harmony to be preserved and your children treated equally.

Experience has shown that having a company operated by employee-children and nonemployee-children is usually bad for both the children and the business. Tensions may arise over the amount paid to the nonemployee owner, the amount of salaries, benefits and perks paid to the employee-owners, the amount not distributed and kept in the bank account as retained earnings or a debate on how well the company is being managed. Even if the children trust each other and get along well, the introduction of brothers and sisters-in-law can stir up resentments and trouble.

Can you see where this is going?

One of the simplest solutions to this dilemma is to give the business to the children who are involved with the company and give other assets of approximately the same value to the other child.

By this point you should have consulted with an attorney. For instance, how can you make things equal between your children if there aren't enough other assets? An attorney can show you how to be creative, such as by buying a life insurance policy or by giving the non-employee some of the business' real estate (which is tightly controlled by a long-term lease).