The majority of businesses in the United States are small businesses. To understand the impact that small business has, consider the fact that small business generates nearly 60% of all new jobs within the United States. Amazon, Walmart, and other big companies often stand out with their massive revenues and employment numbers, but at the end of the day, the primary drivers behind the economy are small business.
If you have a family business or personal business that you’ve built up, you are likely one of these economic drivers. For many families and individuals, the business becomes an identity. Family businesses in particular are susceptible to acting as an identity for that family. Thus, for many small business owners planning for retirement, the question of what to do with the small business is a major stressor. For a family business, the transfer of control and ownership from one generation to the next can be incredibly complicated and strenuous. If it’s not a family business, then the question is primarily how to effectuate the sale and estate planning repercussions. The following sections will give an overview of general considerations for family-owned businesses and then general concerns relating to the sale of a business.
Family Owned Business Concerns
Selling a family-owned business generally takes one of two forms: selling to someone within the family or to someone outside the family. If you’re selling the business to family membersyou may wish to carefully consider limitations you would like in place to ensure disputes are resolved objectively and amicably. When selling within the family, you may recognize that three family members will purchase a stake but that only one of them is capable of running the company. To ensure a smooth transition, you should first be clear with everyone involved on your views and expectations. Second, you should consider amending the organizational documents for the business to reflect your wishes. Similarly, if you are selling your interest to an outside party and wish for family members to remain within the company, you may wish to structure the organizational documents to properly reflect your intentions.
When considering selling your business, you should first speak with an attorney experienced in estate planning and small business. When speaking with this attorney, be clear about your expectations and future plans including how much you plan to spend annually in retirement, whether you want to make gifts to friends and family or make donations to charities. The manner that the money from the sale is handled will be heavily dependent upon your future plans.
Additionally, you should consider the tax consequences of selling your business and when your tax obligations come due. The strategy for allocating tax money differs if you sell in December compared to January due to the tax not coming due until the year following the sale. Thus, selling in January rather than December gives you an extra year before having to make the tax payment.
Ultimately, selling your business as you come into retirement is complicated and a misstep in the process could have lasting implications. As a result, you should consult with an experienced business law or estate planning attorney who understands your unique circumstances.