Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back

Passing the Baton

Written by: Rolf E. Goodwin

After years of building up your business, you are faced with the ultimate question: how to pass on the business to the next generation? The "next generation" may be one or more of your kids who have learned the family business; it may be one or more employees you have brought along, and don't want to lose. Let's take the question a step further: how can you arrange to transfer some, and eventually all, control, while keeping an economic interest in the business as you prepare to retire?

The usual response is to put off dealing with succession issues. There are always plenty of reasons to wait. For example:

  • It costs money (but not nearly as much as seeing that key employee become impatient and go into business for himself).
  • It may be uncomfortable making choices as to how to treat multiple kids and/or employees (don't fool yourself: they've already figured out the question; giving them the answer will clear the air).
  • You may be worried that your preferred successor didn't make the best marriage, and that the business might get tangled up in an eventual divorce.
  • You may feel that waiting a little longer will give your successor a chance to get his act together (this hasn't worked for Queen Elizabeth; best to deal with the Prince Charles you've got, and consider putting the business into trust for Prince William).

When the question comes up, the better answer is to pull together your team, including your lawyer and your financial adviser, and start planning. Everyone (including you) will be glad to know where things are going.

There are an infinite number of ways to structure succession. You can place your business in an entity (LLC, partnership, trust). This allows you to keep on working, if you wish, but with an agreement to transfer management and some ownership as time goes on, while you retain rights to income. You can continue to own an interest in the business as your work schedule decreases, and take your money out that way. You can lease or lend assets to the company so that your successors can use cash flow to gradually buy you out.

As you get into the process, you will probably find that it ties together a lot of questions you may have been planning on dealing with "someday", or even "soon". Succession planning is a great opportunity to tie into your estate planning process, and into figuring out your insurance needs.

For some companies, more sophisticated, tax-driven methods may be appropriate. You may have heard about ESOPs, for example - employee stock ownership plans. These allow the owner of company stock to sell some or all of the company stock to a trust for qualified employees. Stock is transferred as the trust pays for it. Because the government wants to encourage ESOPs, there are some big tax advantages. ESOPs are not just for huge corporations. Your team can determine whether this, or any other, option makes business sense for you.

For others, a simple partnership will do. But even then, you want to make sure that your rights are protected, and that you will minimize the tax bite from your process. Your team can help.

Your lawyer, and your financial planner, can only work for you in this process. A good lawyer will suggest that your successor should have independent advice before entering into an important agreement with you. This may seem like a waste of time and money, but a second set of eyes, looking from a different position, is likely to see more.

As you proceed with succession planning, you are likely to see at least one big benefit. The future will matter more to your successors. Your business will start changing from "my company" to "our company". Structuring your succession around your own individual needs and characteristics, and those of your successors, can give you an excellent chance of greater success than you could ever have going it alone. Don't put it off - talk to your team!

Rolf Goodwin is a director of the McLane Law Firm and a member of the Real Estate/ Commercial Lending and Corporate groups. He can be reached by email at rolf.goodwin@mclane.com.

Integrity and trust

At McLane Middleton we establish and maintain long-standing relationships with our clients to help us better achieve their unique goals over time. This approach to building trust requires that our esteemed lawyers and professionals use their broad, in-depth knowledge and work together with integrity to ascertain sound resolutions to legal matters for their clients.

Strength in numbers

McLane Middleton is made up of more than 105 attorneys who represent a broad range of clients throughout the region, delivering customized solutions. As a firm we are recognized as having the highest legal ability rating. The firm is rated Preeminent by Martindale Hubbell and is recognized as one of the nation's leading law firms in Chambers USA. Our attorneys are distinguished leaders in their respective practice areas.

Meet Our People

Commitment and collaboration

McLane Middleton's versatile group of attorneys and paralegals become trusted authorities on each case through collaboration. We work with our clients to learn their individual needs first and foremost and, together, we develop comprehensive solutions to their specific legal matters. This approach helps us exceed our clients' expectations efficiently and effectively, client by client, case by case.

Practice Areas

A history of excellence

McLane Middleton was established in 1919 in New Hampshire, and has five offices across two states. However, deep historical roots don't allow you to become innate. Our firm is organized, technological, and knowledgeable. Our history means we are recognized. But our reputation is built on the highest quality of service and experience in very specific areas of law.

The Firm

Intelligence paired with action

Our team continuously seeks opportunities to enhance their professional development and put key learnings to action. The pursuit of further insight guides us to volunteer service opportunities, speaking engagements, and teaching roles. Our lawyers are sought after thought leaders across their industries, and recipients of leadership awards throughout the region.