Whether you decide to exit entirely with a sale to a strategic buyer, sell a majority of your interest in the company to a private equity firm or exit through an ESOP transaction, up-front planning is vital for determining the structure and type of deal that will accomplish your goals with regard to both your business and your family.
Most, if not all, business owners are so consumed with starting, managing and growing their businesses that they ignore the consideration of estate planning techniques, which can substantially reduce the tax consequences imposed upon the death of its founder and principal shareholder. Personal estate planning is often overlooked by selling owners, but it is as essential as preparing your company for the sale process.
Although estate planning and the associated tax considerations frequently add another layer of complexity when considering the sale of an interest in a business, the benefits can far outweigh the time-consuming nature of this activity. Consideration of estate- and tax-planning techniques can force a business owner to seek the most comfortable (or least uncomfortable) balance of potential tax savings, loss of control and willingness to allow potentially significant parts of the sale proceeds to pass to, or for the benefit of, family members.
It may be appropriate for you to consider a family limited partnership, a trust or some other wealth transfer vehicle that may, among other benefits, transfer interests in your company at a discount to your family members while you continue to maintain control of the entity. Preparing and planning for the introduction of new investors into your business or the ultimate sale of your business, although daunting, also presents an opportunity to address family issues and strategies to maximize the net after-tax proceeds of income that you receive from the sale of all or part of your company. Estate-, tax- and wealth-planning techniques are most effective when considered and implemented as far as possible in advance of a transaction involving the sale or disposition of a business, in whole or in significant part, and well before the valuation process begins with the investment banker and the private equity firms. A wealth planner plays an integral role in this process and should be a member of your team of advisors.
Duane Morris Private Equity: The Owner's Manual
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