At some point in owning your own business, you might decide to sell to one of your own family members. You could have a variety of reasons for choosing to sell and selling to your family is a common choice. You might be retiring and want the business to stay in the family, with people you can trust, and ensure that the business will continue to be successful for years to come. You might also simply want to gift your business to a family member and watch them prosper! No matter the reason, you’ll want to be sure you transfer your business to your family member with the least amount of tax liability and debt possible.
As you are making your decision about how to transfer the business, it’s important to think about what you will need financially to successfully move into retirement or the next stage of your business life. Make sure that you are engaging your financial planner and your accountant for tax planning and financial structuring. They will take into account the profitability and value of your business as well as the tax implications of any transfer.
There are many reasons to transfer your business, reducing liability, capitalizing on the cash value, protecting your legacy and more. The motivation for selling your business will also impact the structure of the transfer. Regardless of your primary motivation, you’ll want to think carefully about how much liability and risk your family member may be taking on when they take over.
There are several transfer options to consider when transferring your business to a family member. You can transfer your business as a gift or via a sale or partial sale. A sale might seem to be the most obvious choice; however, sometimes gifting the business is the most feasible option. If there is substantial debt or taxes owed on the business, then you’ll be placing that responsibility on your family members. Gifting the business allows a bit more flexibility in terms of responsibility, for instance, family members may not be immediately responsible for gift taxes if the business is worth less than $5.45 million as protected under the lifetime exemption.
Another transfer option is to sell your business fully or partially to your family member. It’s likely that your family member won’t have the capital or cash on hand to purchase the business outright, so you may have to finance the majority of the sales price on their behalf. It’s easy to get this done! You simply write a note sale where the buyer agrees to make payments to you in exchange for full or partial ownership in the business. This way, if for any reason, the buyer defaults, you can easily regain control of the business.
It’s up to you as to what kind of role you wish to continue to have in the business. If you want to play a significant or important role even once you’ve transferred ownership to a family member, you can simply help the new family member get caught up to speed before you leave the business altogether. If you know you can trust the family member immediately to keep the business up and running, then you can simply keep physical ownership of the assets and lease them out to the new owner.
Ultimately, you have a ton of choices at your disposal when considering transferring your business to a family member. At Liberty Group of Nevada, we have brokers ready to help guide you through this important process for your business. Contact us today to get started! https://www.thelibertygroupofnevada.com/ or (775) 825-3948