Successful Family Business Succession Planning — Where to Start

By Richard L. Weber, Esq.

Ensuring a smooth transition to the next generation of family ownership can be challenging and requires careful preparation and execution.

Family-owned and operated businesses are a source of great pride to those who have built these companies from the ground up or built upon an earlier generations work. Ensuring a smooth transition to the next generation of family ownership can be challenging and requires careful preparation and execution.

Following are some tips to help:

Determine the Business Objectives of the Key Players

Transitioning a family-owned business requires the transfer of two distinct items: (a) ownership, and (b) management and operation. While the individual founder of the business may have held both roles simultaneously, the transition process may divide those roles among multiple family members, each with different goals. For example, the departing owner(s) may want to retain a role at the business, perhaps by serving on the board of directors or assuming a consultant role. Separately, the next generation may want “free rein” to take the business in new directions, including exploring new product lines or relocation to a new facility. The transition process must strive to identify and resolve the differing business goals of each of the key players ahead of time.   

Consider Family Dynamics

Business succession planning can challenge long-standing family dynamics. For example, where certain members of the next generation have worked in the business for years while others have not, what will be the effect if all members of the next generation receive an equal ownership share? If members of the next generation do not get along, is it viable to install each as co-managers? The situation is more difficult if the founding generation includes multiple family members, each with children in the business and a different timeline for stepping away from the business. Impasse may require that the family engage an independent CEO to operate the business. In addition, the business founder may wish to consider alternate gifts or arrangements to provide for children that will not have a role at the business, including making gifts via his or her estate plan.   

Consider the Best Mechanism for Business Transfer — Gift or Sale?

A business succession process involves either a “gift” or a “sale” of the business and its assets — often, a combination of both methods is required. A transfer by gift raises potential tax consequences: Under current I.R.S. regulations, an individual can “gift” $15,000 to another individual each year without impacting the gifting party’s lifetime estate and gift tax exemption. In contrast, a transfer by sale allows for immediate income to the departing owners and/or influx of cash to the business, but may place a high financial strain on the new owners. From a tax perspective, the current economic climate (which includes low interest rates and reduced asset values) presents many advantages in planning for the transfer of a business.    

Identify Potential Liabilities of the Business Early in the Process

While the next generation may focus on business profits and operation, it is important to understand that business liabilities are part of any business transfer. Existing and future tax liabilities, contractual obligations and litigation risks must be identified. One area of concern that is easy to overlook is the financial status of the departing business founder — if the succession process is not handled properly, the death of the founder post-transfer could trigger significant individual estate tax liability, which in a worst-case scenario could then demand that the family sell the business in order to satisfy the tax debt.

Engage Professionals to Plan and Execute the Transition

Business succession planning should not be attempted casually or haphazardly one does not know what one does not know, and many of the challenges and complications inherent in the business succession process are not immediately apparent to those who do not regularly address such situations. Successfully business succession planning demands the involvement of attorneys, accountants and tax professionals early in the process. These trusted professionals can assist in ascertaining the priorities and wishes of both the founding and successor generations, and identify and resolve the challenges that will arise along the way.

Richard Weber

Richard L. Weber is an attorney with Bond, Schoeneck & King, PLLC in Syracuse. He specializes in business litigation, trust and estate litigation, and property disputes. To contact him, send an email to