Last week, we touched on the subject of succession planning and defined it as the process of deciding the method and timing of the transfer of ownership in a business. We also concluded that wealth transfer planning and business succession planning are most effective when combined with an overall Estate Plan.
To conclude on the subject this week, we will review 5 business forms and outline the most seamless options available for easy transfer to intended beneficiaries. These will help you avoid the pitfalls normally associated with business succession planning.
- Sole proprietorships
If you operate your business as a sole proprietorship, with all business assets held in your own name, you can simply transfer your business property to a Trust arrangement. Ensure you also transfer the business name itself which will also transfer the customer goodwill associated with the name.
- Partnership interests
If you operate your business as a partnership with other people, you can transfer your share of the partnership to a Trust arrangement. Do ensure the partnership agreement covers your ability to do so (i.e. transfer your holdings to a Trust). While not uncommon, a partnership agreement may limit or forbid transferring your holdings to another person or institution.
- Solely owned corporations
You should have no difficulty transferring your holdings in a corporation to an Institutional Trustee. Your legal team will be able to advise you on the process involved with this. You may also contact us where you require further support on this.
- Closely held corporations
For a corporation that does not sell its shares to the public (a closely held corporation), a Living Trust will be able to hold your shares. Simply list the stocks in the Trust document and then have the stock certificates re-issued in the name of the Trustee. Ensure that the articles of incorporation still vests voting rights in your capacity despite a Corporate Trustee acting as Trustee to your Trust arrangement.
- Limited liability companies
If your business is an LLC, you will need the consent of a majority or all of the other owners (check your operating agreement) before you can transfer your interest to a Trustee of your choice. You can however retain your right to vote despite having transferred your economic interest in the LLC.
In summary, the most seamless method of business transfer is via a Trust instrument. This ensures that your intended beneficiaries can seamlessly take over ownership of the business bequeathed to them, whether or not they are involved in the daily running of the business.
Research shows that without proper planning, only 30% of family businesses survive into the second generation and only 12% into the third generation. Talk to us today and let us assist with developing your business succession plan to ensure that your wishes and desires are achieved, and in the most seamless manner, after you are no longer able to carry on running the business.
We will begin discussions on Living Trust in next week’s edition. Do look out for it on this page. In the interim, connect with us on Twitter (@fbnquest), LinkedIn or Facebook (fbnquest). Also send us questions/ comments via SMS to 0706 1331 146 or via email to email@example.com.
You may also tune in to listen to the Legacy Series radio programme on Classic 97.3 FM Lagos by 7pm on Mondays or Cool 96.9FM Abuja, by 8.30am on Tuesdays.
Visit www.fbnquest.com/legacyseries for more information.
FBN Trustees Limited RC 29763
10, 16 – 18 Keffi Street, O‑ Awolowo Road, SW Ikoyi, Lagos, Nigeria.
Tel +234 (1) 2798300, + 234 (0) 708 065 3100
A part of the FBN Holdings Group