If you have owned your own small business for years and have seen it grow to be a successful endeavor, you may be facing a dilemma if you are reaching an age when you want to slow down or retire.
There are a number of options as to the next step for your business, and there are a lot of considerations.
Many people grow businesses with the ultimate plan of turning it over to their children. But turning to a son or daughter and saying, “This is now yours” is a little more complicated than that. That’s assuming the son or daughter wants the business. And if there are multiple children – and all are interested – it’s even more complex.
If there are multiple children interested in ownership of the business, the first step is to determine how the business will be structured. A sole proprietorship for example may have to become some sort of business entity such as a corporation or a limited liability company.
Once that’s done, it’s important to follow a very specific process with a few ultimate goals in mind.
Whether you sell the business or gift it to children, you must pay careful attention to any related tax issues.
Under IRS rules, you can set up a gifting program to transfer ownership in a way that reduces gift taxes. This method could take several years and requires careful planning.
If you choose to sell the business outright to a family member, there are ways to avoid or reduce gift or estate taxes.
There are other methods as well, including a buy-sell arrangement, a grantor retained annuity trust (GRAT), a grantor retained unitrust (GRUT), private annuities, family limited partnerships and more.
The best advice I can give you, if you believe this is a path you want to pursue with your family is to start planning early. I can help with this complex process.