Using ESOP, Family Foundation and Family Ownership to Successfully Transition a Family-Owned Business

There are more than 20 million family-owned businesses in the United States. Very few family businesses successfully transition from one generation to the next. Common reasons transitions fail include (i) certain family members are detached and disengaged from the family business, (ii) certain family members feel trapped and held hostage to the family business through the estate instruments of the patriarch or matriarch (i.e., the estate-planning vehicles dictate control over decision-making, liquidity rights and distribution rights), (iii) certain family members feel that a big portion of their wealth is locked up and contingent on the performance of others family members, (iv) certain family members not working in the family business develop hostility toward family members and management working in the family business, and (v) the board of directors and family members are not attentive to the tools available to the family business and to the family to successfully implement ownership transition from one generation to the next.The old technique used to transition family businesses solely involved the use of estate instruments of the patriarch/matriarch that superimposed an outcome on the family and the family business without focusing on the proper ownership and corporate governance structure of the family business (which…