Succession Planning is Necessary

Tuesday, June 16th, 2009

If you own a part or all of a closely-held business, you’ll have to put value to that business whether you like it or not. Otherwise, the IRS will.

Many things can happen, like selling or gifting a family business to the children, divorce (where valuation can become a very expensive legal battle), or death (where valuation is require for estate tax purposes). If there is a wrong valuation of your business, it can rob you of your hard-earned dollars. And your family will be affected as well. What’s worse, there’s even a possibility that you’re business might just be sold to taxes.

Make no mistake; it’s very easy to transfer business ownership to your kids. Just follow these simple steps:

1. *Recapitalize your company by converting majority of the old voting common stock into non-voting stock.
2. *Get an appraiser to value your non-voting stock.
3. *Take appropriate discounts – the law allows three separate discounts: minority discount, lack of marketability discount and non-voting stock costs less than voting stock discount.
4. *Elect S Corporation even if you’re now a C corporation.
5. *Transfer to your children only the non-voting stock.

A lawyer and a certified public accountant can help you with this process. You can find these professionals through referrals or lawyer listings online.

Tags: business, Divorce, IRS, lawyer, lawyer listings, online, referrals
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