Tools available for family business transitions

Transitioning your family business to your heirs may sound simple enough, but in fact, doing it successfully can prove difficult. To help improve your transition’s chances for success, consider family business governance. This is a system of correlated tools and actions to support the next generation with controlling, owning, and operating the business. It also puts in place a framework that contains business protocols, describes how future ownership changes occur, and establishes a precedent for making business decisions.

Frequently used tools

There are several tools that can be employed as part of a family business governance system, including:

• A buy-sell agreement is a legally binding contract that stipulates how an owner’s share of a business may be reassigned if triggering events occur, the price that will be paid, and the payment structure.
• A professional board of directors is a governing body that helps oversee the business and makes major decisions. A board generally comprises three, five, or seven professionals from various industries that have the subject matter expertise to assist the company strategically.
• A family board or council is a group within the family — or may include the entire family — that comes together to make decisions about the business on the family’s behalf.
• A company mission statement can be valuable to your employees and your family as it addresses the business’s purpose and vision and can help guide future company leaders.
• Your estate plan can address ownership, control, distributions, and several other factors.

Helping ensure a successful transition

Transitioning the family business to the next generation is much more than transitioning shares. A well-thought-out and documented plan that addresses ownership, control, and operations helps build a strong governance system for your business. This system, combined with communication with the next generation, can be key to helping ensure your transition’s success.

Wells Fargo Advisors is not engaged in rendering legal or tax advice. If legal or tax assistance is required, the services of a competent professional should be sought.

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This article was written by Wells Fargo Advisors Financial Network and provided courtesy of Marc Alexander, CFP ® , CIMA ® President, in Atlanta , at (404) 419-8111.

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