Many people build their businesses up with the explicit hope of passing it on to their children or another family member when the time comes. While some people say that business and family shouldn’t mix, a brief look at the history of some of the biggest corporations would say otherwise.
Still, passing a business on to a family member may require a little additional care and preparation compared to selling to a non-family member. Let’s take a closer look.
So, can it be done?
A business absolutely can be passed on to a family member, and whether it’s passed over for money or using another structure will depend on the goals of the business owner.
There could be any number of motivations for doing so, and which one is most important to you will likely change how you approach the sale.
You might want to keep the business in the family, or you might just find that your family member is the most convenient person to sell it to. Either way, it’s important to seek advice from an expert in business transfers such as Dexterity Partners.
What you’ll want to consider
When selling to a family member, there are a number of things that you might want to consider:
Your ongoing involvement
When you sell a business to a stranger, it’s likely that you won’t be involved at all in the business going forward. With a family member, that might not be the case at all. If they’re going to be asking you for help, it’s important to be clear on whether you’ll be remunerated or not, and whether you might have other conflicts of interest if you move on to another business venture.
Potential for disagreement
If you aren’t concerned about how much you’re going to get for the business, this likely won’t be relevant. If, however, the capital that you receive is going towards your retirement or some other important part of your future, it’s crucial that you think about how the negotiations on price could lead to a family feud. This will of course depend on the relationship you have with the family member, and might not be an issue. Either way, it’s definitely worth keeping in mind.
Should you go for shared ownership?
If you want to remain involved in the company, but want to share the responsibilities with one or more family members, then you could also consider choosing to go for a shared ownership solution.
By creating the right kind of shareholders’ agreement, you can help to minimise the possibility that conflict will arise, as you’ll always have a clear legal document that asserts which responsibilities lie with whom.
While it is possible to sell your business to a family member, it’s definitely worth taking some time to think about it. While the process could run smoothly with no issues at all, due to your personal relationship with the potential new owner, there could be the possibility that some conflict arise.
