Benefits to Heirs

• Creates a qualified purchaser for the inherited business interest.

• Establishes a fair price for the business interest.

• Helps set the value of the business interest for the purpose of estate tax fillings, thereby helping the planning process and possibly reducing the estate tax obligation.

• Provides cash in exchange for the business interest - a risky asset for heirs to hold.

• Reduces the time needed to administer the estate - thereby reducing estate administration costs.

• Provides the estate with the cash needed to meet estate taxes and estate administration costs.

  Benefits to Business

• Increases likelihood that banks and suppliers will continue to extend credit lines.

• Helps to assure employees that the business will continue despite the death of a key owner/employee.

• Lessens the probability that customers or clients will seek other suppliers following death of an owner.

  Benefits to Surviving Owners

• Assures the surviving owners control of the company because the heirs must sell to the firm and not to outsiders.

• Provides funds to purchase the business interest held by the heirs.

• Guarantees full management control by eliminating the possibility that the heirs will assume management positions for which they are not qualified.

• Eliminates potential emotional conflicts between the heirs and the surviving business owners - conflicts that could impair the harmonious operation of the company.

• Eliminates pressures on the surviving owners to help the heirs financially because they are also family friends, even though such aid might exacerbate the problems of a business which is struggling to adjust to the recent loss of a key owner-employee

 Conflicting Interests

At the death of the business owner, the interests of the surviving owners and the  heirs may be in conflict:

Interests of the Surviving Owners Who Are Also Employees

• Received competitive tax deductible salary.

• Build business for future growth.

• Establish cash reserves.

• Take long - term prospective in most decisions relating to the business.

• Dividends ARE NOT relevant.

Interests of the Heirs Who Are Non-Employees 

• Obtained ongoing income!  

• Realize funds from business to paying estate costs.

• Oust non family surviving shareholders employees whole are not "cooperating" with the heirs.

• Dividends ARE relevant.

Conflicting Goals

In addition to different interests, the surviving owners and the heirs may have different goals:

Goals of the Surviving Owners Who Are Also Employees

• Retained control.  

• Realize long -- term growth in value of business.

• Invest both business earnings  and borrowed funds in new products and services in order to fuel long -- term business growth.

Goals of the Heirs Who Are Non-Employees

• Reduce risks and fluctuation in business income and business value.

• Obtained cash for personnel needs.

• Get "fair" price  for all or part of the inherited business interest.

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