The world has changed. Twenty-five, thirty years ago, many company owners said they wanted to leave their businesses to their children. The choice was clear. Parents would die, business would move to the children. Many children generationally were very happy to assume the business. The world has changed. We have a very, very diverse workforce and we have very diverse family structures. A lot of times children don’t want the business or may have built their own wealth, and some people don’t have children or other heirs. So occasionally we’ll encounter a business or a business owner that wants to leave their ownership to a charity.
How we do this effectively and how do we make this work? Well, fortunately, this looks a lot like leaving a business to another loved one. You can see some of our earlier blog posts on the types of things you want to take into consideration in certain lengths. The key here is that you want to hand over something in an orderly fashion so that everybody can transition into new ownership. The charity will typically be glad to take over the economic rights, but the charity may or may not have professional management experience. What we really want to do is something very similar to what we do if you’re preparing a business for it possibly being handed over to a spouse who is not business savvy.
We talked about that in another blog (insert link). So in preparing a company to hand it over to a charity, we want a robust management structure. We want multiple people involved in the operations of the business. We want as much there that can be handed over so that the new employees and the new owners can take over without having disruption for the employees and others involved with the business. The more that it is a turnkey continuous operation, the better for the heir or charity, so we want to have a board of directors or other functioning management team the moment the people are involved, so if the owner is no longer there, the business continues to move forward.
The core processes are running, the employees don’t run for the door, and everybody keeps the economic value turning. Obviously, in the longer term, the charity or new owner will have to do things to keep the business growing and evolving, and that management team may change but have a very strong management team in place at the time of transition will allow the new owners to step in orderly, protect the economic value that they’re inheriting, and keep the business moving forward.
What’s been your experience with transitioning your business? Have you known of businesses that have had difficulties getting from one owner to the next? What systems and processes have you put in place in your business? Join us in the comments below and let us know about your experiences.
This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity. Freeimages.com/Photographer Gregory Porter.
About the Author
Shawn McBride — R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Firm, PLLC. Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can email R. Shawn McBride or call (214) 418-0258.
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