If you and/or you and your spouse are entrepreneurs, you might want to establish a jointly-owned family enterprise that you can pass down to your children. Building an empire for the next generation is an excellent way to establish a memorable legacy. Furthermore, you can leave behind an inheritance that gives the next generation greater financial stability and a stronger sense of purpose and belonging.
When it comes to such a passionate, entrepreneurial undertaking, careful planning can help you to better ensure that you get every detail of the business just right. One critical decision in the planning process involves selecting the optimal business structure. This decision can impact everything from ownership and control to taxation and succession. The right structure can give your family enterprise a solid foundation to help ensure longevity and stability.
Limited Liability Company (LLC)
An LLC is increasingly popular among family-owned businesses because it balances flexibility and liability protection. Suppose your children have diverse personalities, as is the case for many families; an LLC can be an excellent choice. It can allow your children to take on different management roles with varying ownership percentages.
Furthermore, your children and future generations need not worry about being personally liable for the company’s debts or liabilities. Moreover, you can have an easy time transferring ownership interests to future generations.
Corporation
A corporation is an attractive business structure for a multi-generational family enterprise because it makes succession straightforward. You and your spouse can easily transfer your shares to the next generation to help ensure the continuity of the family legacy.
Additionally, your offspring can benefit from liability protection because the business will exist as a separate entity from the family’s personal assets. Furthermore, the next generation won’t have to worry about double taxation because the profits will be passed through their personal tax returns.
A corporation also allows family members who are shareholders in the company to elect a board of directors to oversee the management. This can ease some administrative burdens for the next generations, allowing them to explore other interests besides running the family business.
Choosing the ideal business structure for a family-owned company intended to serve as a legacy requires careful consideration of several factors, including liability protection, tax implications and ease of ownership transfer. Each family business is unique, and it is essential to consult with legal practitioners to determine the best structure to help ensure the legacy of a specific family business, potentially for generations to come.
