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Succession of ownership refers to the transfer of ownership of the family business from the current owner(s) to the new owner(s). This transfer of ownership raises a variety of issues within both the family and the business.

Rationale for planning for succession of ownership

A common problem can arise in the planning for succession of ownership when a family business owner’s will calls for the ownership of the business to be divided equally between the owner's children. The children who are managing the business may expect generous salaries and reinvestment of profits into the business, while those children not in the business may expect profits to be paid out as dividends. After the owner dies, differences of opinion are more likely to arise among family members – and these differences can destroy a family.

Financial and tax aspects of transfering ownership of the business

Based on the valuation of the business, the value of the buiness which exceeds the federal transfer tax credit will be taxed. There has to be adequate liqidity to pay this tax without depleting the working captial of the business. Strategies to reduce this tax include liquidity strategies, private annuities, GRATS, and recapitalizations (Transferring assets).

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Categories: Succession of ownership