There are some situations where it simply makes sense for a child to buy out a share in the family business. The other option is for the parent to gift shares or to leave shares in a will, trust, or foundation. The challenge is that these same parents might need capital to rely on in retirement, so selling shares in a business to a child is one way to help finance this shift in life.
In order to do this, an outright sale can be conducted or financing can be arrange. The amount of the total financing depends on several factors like which assets are secured by the business in order to leverage the buyout and what money is currently being borrowed by the business, if any.
There are a few key benefits to buying out rather than waiting to pass on the shares in another way:
- This generates cash for the parents in retirement
- The parents can easily remove themselves from bank obligations
- The child may have extra motivation as far as the ownership of the business is concerned, giving him or her a bigger stake in succeed.
Do you have questions about succession planning? Reach out to our office today.