Archives: Governance & Business Operations

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Simple Ways Advisors Can Help with Family Business Governance

Let’s face it.  “Governance” often seems like a dirty word that is best avoided and never uttered.  But, all family-owned businesses must be governed and the governance process is usually already in place, albeit often ignored.

This is a missed opportunity.  Ignoring the governance process creates huge challenges for succession planning and Continue Reading

Paying your children to work in the family business? How much pay is too much?

It’s important to remember that when your family business sets compensation for family members, the IRS may be looking over your shoulders.  Why?  The IRS may disallow the deductibility of salaries and other compensation if it determines that the compensation is higher than “reasonable.”  The family business discussed in this article by Mich… Continue Reading

Consider The Risks Before Electing S Status For Your LLC

Family-owned businesses are often formed as LLCs.  For federal tax purposes, an LLC with two or more members is treated as a partnership unless it elects otherwise.  Income earned by a partnership is not subject to a separate entity-level tax under federal tax laws.  Rather, net profit or net loss of the partnership passes through to its partners who mus… Continue Reading

Success in Succession: Using Strategic Planning to Address the “Missing Middle”

Typically, only 12% of family businesses reach the third generation, and as little as 3% make it past the fourth generation. According to PwC’s recent global survey of over 2,800 family businesses in 50 countries, these statistics stem from a lack of succession planning.

Only 15% of family firms have adopted a meaningful plan for their succession proces… Continue Reading

The Importance of Leadership Training Outside the Family Business

For up-and-coming family members who anticipate becoming leaders in their family business, an increasingly common requirement is that they first get meaningful business experience outside the family business.  Michael A. Klein of MK Insights recently published an interesting analysis of such requirements in Smart Business Online, and lays out goo… Continue Reading

Perils in Family Business Succession: Dynasty or Meritocracy?

Big family business conglomerates can get into big trouble when impacted by negative global market forces.  That’s the story of Hanjin Shipping Co., a family-owned Korean shipping company (and part of a large Korean chaebol, or conglomerate) that filed for bankruptcy protection in late August 2016.

But, according to this linked article in the Seattl… Continue Reading

Separate but Equal

One of the shining examples of successful family businesses at the highest level is Power Corp. of Canada.  In 1968, after nearly two decades of successful acquisitions, Paul Desmarais acquired Power Corp. to be the anchor of his growing conglomerate of companies.  For the next 28 years, he grew Power Corp. into one of the largest and most successful hold… Continue Reading

Proposed Regulations Would Curtail Most Valuation Discounts for Family-Owned Businesses

2016 Planning Opportunity

Recently proposed Treasury Regulations (“Proposed Regulations”), if enacted as proposed, would curtail valuation discounts that currently reduce the value of certain business interests transferred during life or at death for gift, estate, and generation-skipping transfer tax purposes. The limitation or eliminati… Continue Reading

Earn-out Pitfalls for Business Owners

Recently, a couple of business owners received an offer to buy their company.  The potential buyer proposed paying 25% of the Company’s value in cash up front and paying the remaining 75% over time, contingent on certain earn-out targets being met in the future.  The owners wanted some thoughts on this structure.

Earn-outs are not uncommon in the sale o… Continue Reading

The Next Generation

Almost by definition, a family-owned business consists of multiple generations of owners and operators.  The different generations may have different visions for the business, but they are usually all aligned on wanting what is in the best interests of the Company.  When it comes to issues of succession planning, however, there is an inherent tension … Continue Reading

The Hidden Tax Trap in Your Family Business—and How to Avoid It.

You have a business.  You have a family.  You have a family business.  And frequently, the family makes decisions about the business.  Sometimes, those decisions are not formalized.

And that’s where a hidden tax might lie.

Here’s a common scenario:

A family business is owned by a handful of family members.  Then some significant transaction hap… Continue Reading

Family Business Survival: Understanding the Statistics

How is a family business like a starfish?

The oft-quoted statistic that family businesses have a 30% generational survival rate has led some to think that family businesses are at a disadvantage compared to other kinds of businesses.

This article by Craig E. Aronoff, Ph.D., the co-founder and principal consultant of The Family Business Consulting Group, … Continue Reading

Recap: How our Business Survived Three Generations of Family Leadership and Ownership

Two generations of the Hemingway family recently shared their experiences with partnering for growth and developing the next generation.

On January 20, 2016, at Davis Wright Tremaine’s Seattle Office, Jon Hemingway, Chairman of Carrix, Inc. and CEO of Progeny 3, shared his perspective on his fourth generation firm’s evolution from a waterfront la… Continue Reading

Who Runs Your Business and Finances if You Can’t?

You are the senior executive of a successful family business.  If you experience a stroke, or a heart attack, or are in a serious accident, such that you are in a coma, for example, or otherwise unable to act on your own behalf, what would happen to your business and other financial affairs?

With respect to your business, if it is a corporation, then your Vice-P… Continue Reading

Succession Planning: “If I get hit by a bus tomorrow…”

Let’s face reality.  We are all going to pass on someday, so we might as well be prepared and lessen the burden for those following behind us.

 

One of the first steps in effective succession planning is to gather in one place all of the institutional knowledge stored in the current generation’s head.  This may seem like an impossible task, but the p… Continue Reading

Washington LLC Act: How Family Businesses Are Affected

Embracing change is tough, because it rarely hugs you back. But the recent changes to the Washington State LLC Act (RCW Chapter 25.15) at least have some provisions that are affectionate toward family businesses and LLCs in general.

Introduced to Washington in 1994, LLCs have gained in popularity every year. More and more family businesses are either choo… Continue Reading

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