Taking the “Family” out of Family Business

Go to fullsize imageAs business owners we all like to think we are building and growing something of value which might one day be able to be passed down to our children to give them a bit of a head start in the business world.

 

 

Not only can family businesses provide a source of income and development for younger family members, but passing down family businesses in this way at retirement can often solve succession issues so that the business does not die or have to be sold with the retirement of the owner.

If, however, you do pass down a business to a family member you need to be sure to pass it all down and not leave yourself with some hidden surprises if things go bad sometime in the future.

All too often we are seeing the retirement of older family members and businesses being passed on, but for one reason or another the retired family member is still a guarantor on secured loans, credit applications with suppliers, and even the guarantee on the lease to the landlord. As they are no longer involved in the day to day financial affairs of the company, any eventual failure of the business is not only a shock but can have immediate and unwanted implications on their own assets, particularly any which remain secured to support business debts.

Worst still is when the retiring business owner has remained a director of the company because they never got around to resigning. In the event of a business failure, not only does the retiring director have to deal with their assets being subject of security by creditors and guarantees they previously had granted (whether supported by securities or not), but they now also have insolvent trading and the possible breach of directors duties issues to deal with.

We may want to build a legacy that will survive us and that we can pass down to family members, but at the same time there is no need to risk all you have worked for. At retirement a thorough review needs to be conducted of all securities, guarantees and creditor applications to ensure your risk is removed and alternate arrangements are put in place. You will also want to ensure that you, if you are passing the business to another person, pass it all and consider whether you want to retain any link as a part-owner or director.

The last thing a retiree wants is a knock on the door from a creditor calling up a security for a debt when he has had been retired from that business for some time.

 

Worrells

 

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