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Family Business Law

Did You Know?

Family businesses account for 50% of gross domestic output and employ half of the U.S. workforce

Over 1/3 of Fortune 500 firms are controlled by families and more than 30% of all family owned businesses survive into the second generation. Family businesses and individuals who control them are often faced with unique issues in the areas of tax, estate planning, real estate and business management.  Family Business Attorneys can represent family businesses in all types of mergers, acquisitions, sales and stock offerings including those to public companies for cash and stock, as well as maximizing tax advantages and/or other business or estate planning opportunities by creating a corporate structure that works best for the family as a whole.

Family Business Attorney can help companies to:

  • Create and implement both long- and short-term strategies that focus on the continued viability of the family business
  • Implement labor policies involving operating environment, incentive compensation systems and the like for owners and non-owner managers
  • Advise owners and managers regarding capital structures, profit allocations, employee incentives, corporate governance and equity realization programs
  • Defend family owned businesses in any or all related contract disputes, ownership rights or other litigation matters that could arise in the regular course of conducting business

According to a Cornell University study, By the year 2005, virtually all closely-held and family-owned businesses will lose their primary owner to death or retirement. The cumulative effect of these landmark "succession events" will be the largest intergenerational transfer of wealth in U.S. history. Approximately $.4 trillion of net worth will be transferred by the year 2040, with .8 trillion being in the next 20 years.

Family Limited Partnerships

Family Limited Partnerships are used for a number of reasons, including asset protection planning, continuity of management and control of family assets, and the transfer of assets to family members at reduced gift and estate tax costs.

Family Limited Partnerships are nothing more than a fairly standard limited partnership in which only family members are partners. The partners each contribute assets to the FLP in exchange for partnership interests. The parents of the family or an entity (usually a corporation or limited liability company owned by the parents) serve as the general partner(s) and own a nominal interest and control the partnership and its activities. The limited partners the parents and children or trusts for children hold the bulk of the equity in the form of limited partnership interests. The general partner, who is entitled to compensation, controls the FLP and makes substantially all decisions concerning the partnership. The limited partners are passive investors and have little if any management control but they do have limited liability for the debts and liabilities of the partnership. For estate planning purposes, there should be more than one individual general partner or, alternatively, the general partner should be an entity. 

Distributions of profits out of the Family Limited Partnership is made by the general partners to all partners in proportion to their ownership interests. The partnership is a "pass-through" tax entity so that the partnership's income, deductions and losses are shown on the tax returns of the individual partners and they pay any tax from partnership operations. The partnership usually remains in place until the expiration of a 50 year term as designated in the partnership agreement, unless the partners unanimously vote to terminate it at an earlier date.

Gifting of Partnership Interests. In many cases, direct gifting of an asset to a child or other recipient is undesirable because they may not be mature enough to manage the asset, the asset may not be easily divisible among multiple recipients, or the person making the gift may wish to retain control over the asset. Instead of gifting the asset itself, one may make a gift of limited partnership interests in an FLP to which the asset has been transferred. Typically, the donor is or controls the general partner of the FLP and, consequently, retains control over the asset.

Inadequate estate planning and failure to properly prepare and provide for the transition to the next generation, coupled with lack of funds to pay estate taxes, were among the three leading causes for the failure of Family Owned Businesses. Every family owned business can benefit by consulting with a Family Business Law attorney.


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