ThinkstockPhotos-86490825Josh Patrick recently authored a short piece in Forbes’ website about passing stock on to one’s children.  Obviously, the dream of many first generation family business owners is to have a successful enough business to pass on to the next generation – and a next generation ready and able to receive it.  And while transition planning is one of the biggest issues facing any family business and much has been written on it, Mr. Patrick provides a few concise insights.  One of his recommendations is to take the time to have a family business “constitution” in place long before any conversations with children ever happen.  This would be a document that sets out how the first generation anticipates passing ownership along and what criteria should be met in doing so.  This kind of a document can manage expectations on all fronts and also ensure fair treatment among the members of the second generation.  Further, Mr. Patrick makes the firm point that you should sell your equity to the next generation – not gift it.  Some might disagree with this – and there certainly may be exceptions to this point – but his underlying rationale is that one’s family business is an economic asset, like any other economic asset.  And a family business owner would do well to focus on this point, even though it has a “family” component.  Read more of Mr. Patrick’s thoughts on the issue here.

 

Drew Steen is a business transactions attorney at Davis Wright Tremaine, LLP.  He represents both buy-side and sell-side clients in mergers and acquisitions, venture capital investments, joint ventures, equity co-investments and restructurings.  He also serves as regular corporate counsel for several closely-held and family-owned companies.  Drew can be reached via email at andrewsteen@dwt.com or directly at 206.757.8081