Sale to employees through Employee Stock Ownership Plan ESOP Through ESOP

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					                            Chapter 8: Family Businesses
Learning Objectives
   To become aware that most of the businesses in the United States are
    family owned
   To understand the advantages and disadvantages of being an
    entrepreneurial couple
   To understand the alternatives for the entrepreneur’s children to enter the
   To comprehend the issues that need to be addressed in a succession plan
Family Business
   A majority of ownership or control lies within a family
   Two or more family members are directly involved
Impact on Economy
   Family businesses account for
       78   percent   of   all new job creation
       60   percent   of   the nation’s employment
       80   percent   of   U.S. businesses
       35   percent   of   Fortune 500 companies
Advantages of Family Businesses
   Stability
   Trust
   Ability to sacrifice for long term
Disadvantages of Family Businesses
   Family issues spill over into business
   Family based on emotion, nurturing, security
   Business based on productivity, accomplishment, profit
Advantages of Entrepreneurial Couples
   Both work long hours/dedicated to success
   Spouses take shifts at home
   Marriage and careers are intertwined
Disadvantages of Entrepreneurial Couples
Effect of Divorce
   May force sale of business
   May cause financial ruin
Divorce Laws
   Community Property State
       All assets and liabilities acquired during marriage are split 50/50 if a
        divorce occurs
   Equitable Distribution State
       Courts divide assets and liabilities according to family circumstances
        and state guidelines

Bringing in the Children
   One third of family businesses are transferred to second
   10 to 20 percent are transferred to the third generation
   Less than 13 percent of businesses stay in the family more than
    60 years
Reasons for Unsuccessful Transfers
   Children do not want the business
   Sibling rivalry
   Entrepreneur reluctant to give up control
   Children of founding partners do not get along
Succession Plan
   Should the company be sold?
   How and when should the company be transferred?
   Active vs. inactive family members
   Low entry vs. delayed entry
   Hiring and compensation policy
   Family Council and Advisory Board
   Choosing a successor
The Succession Plan
   The process of transferring leadership of a business to the next
   Needs to occur over a long period of time
   Needs well-designed strategy
Sale to Employees?
   Sale to employees through Employee Stock Ownership Plan
   Through ESOP, stock owned by the entrepreneur is purchased
    by the company
   Stock is then transferred to employees
How and When Should the Company be Transferred?
   Sell to family members?
   Give to family members as gift/inheritance?
   Transfer while entrepreneur is still living or upon death?
Active vs. Inactive Family Members
   Active family member works in the business
   Inactive family member does not take part in daily company
   Equal or unequal ownership when company is transferred?
Entry Options
   Low-Entry Strategy
       Children begin working in family business at entry-level position
   Delayed-Entry Strategy
       Children work outside the family business
       Rejoin company after gaining outside experience
Family Council and Advisory Board
   Family Council
       Meeting of family members to discuss business issues and problems
   Advisory Board
       Group of family and nonfamily employees as well as outside
Choosing a Successor
   Choose one child as company president?
   Children share power equally?
   Make decision clear to everyone
The Family Business and the Business Plan
   Role of family members described in “management” section
   State if the following exists:
       Family Council
       Advisory Board
       Succession Plan

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