Passing your business to a family member can be one of the most rewarding transitions a business owner can make. But without a clear legal plan, what should be a smooth handoff can turn into a costly dispute, or worse, cause the business and family to fail entirely.
At Twisdale Law, PC, we help small business owners across North Carolina, South Carolina, and Tennessee develop succession plans. Whether you are passing your company to a child, a sibling, or a longtime employee, here are key considerations to protect the business and preserve family harmony.
- Watch Your Language
This is more important than anyone realizes. What you mean when you discuss a possible transition of the business to family can be interpreted differently by those family members.
Example: A business owner with three adult children had one child deeply involved in the day-to-day operations of the company for over a decade. Over the years, the owner often said things like “one day you’ll run the business” or “this will be yours one day.” These comments made the child reasonably believe to mean they would inherit the entire business. However, when the owner passed away, the will divided the business equally among all three children. There were no written agreements, no buy-sell terms, and no documentation to clarify ownership or control. The result was confusion and conflict. The child who had invested years into building and managing the business suddenly had no majority control, while the uninvolved siblings became co-owners. This led to disputes, operational gridlock, and ultimately a costly buyout that could have been avoided with proper legal planning.
No matter what, you have to be clear with your intentions. Watch the words you say so that you do not cause a potential strife between your heirs once you have passed away.
- Decide Early: Gift, Sale, or Hybrid
One of the first legal decisions is whether the business will be:
- Gifted to the next generation (often used in estate planning)
- Sold through a structured transaction (can include seller financing or payment over time)
- A combination (partial gift, partial sale, or staged ownership transfer)
The right structure will depend on tax strategy, family dynamics, and financial goals. Without planning, you may end up triggering gift tax, missing out on capital gains treatment, or handing control to someone who is not ready.
- Put It in Writing: Formal Buy-Sell Agreements
A buy-sell agreement is the cornerstone of a clean transfer. It outlines:
- Who can buy the business or equity
- How the price will be calculated
- How payments will be made
- What happens if the current owner dies, divorces, or becomes disabled
If multiple family members are involved, a buy-sell agreement also helps prevent future disputes and keeps ownership decisions out of court.
- Address Ownership vs. Control
Ownership and control are not always the same. You may want to gift or sell shares but keep voting rights or decision-making power for a transition period.
Consider tools like:
- Voting trusts
- Management agreements
- Gradual step-down schedules
Without clear legal arrangements, a child could legally own the business but be unable to run it, or run it without proper authority.
- Handle Real Estate and Key Assets Separately
Many small businesses also own their real estate, equipment, or intellectual property. These may need to be transferred in separate documents and can raise separate tax or liability issues.
Example: In one case, a family business operated for years out of a commercial property owned by the parents. As part of an informal succession plan, the parents transferred ownership of the business to one child and the real estate to another, under the assumption that the business would continue paying rent and the property would remain in the family. However, there was no written lease, no long-term agreement, and no restrictions placed on the property transfer. After the parents passed away, the child who inherited the building decided to sell it, viewing the property as a liquid asset. This left the business-owning sibling without a secure location, forced into a last-minute relocation and jeopardizing years of client relationships, branding, and operational stability. The conflict not only strained the family but could have been entirely avoided with a legally binding lease and coordinated succession plan.
- Involve Professionals (Not Just Family)
Too often, family business succession is handled informally, with verbal promises and unwritten understandings. These likely do not hold up in court and rarely reflect what all parties expected.
At a minimum, involve:
- An attorney to structure the legal documents;
- A CPA or tax advisor to model the financial impact; and
- If needed, a neutral business valuation expert to set the price.
This not only protects your business, it protects your family relationships.
Twisdale Law, PC: Your Legal Partner for Family Business Transitions
We help small business owners build legally enforceable, tax-efficient succession plans that reflect your goals. Whether you are stepping away now or preparing for a handoff years down the road, we are here to help every step of the way.
With offices in Spartanburg, Asheville, and Jonesborough, Twisdale Law, PC serves clients throughout the Carolinas and Tennessee.
Contact us today to start building a transition plan that keeps your business and your family strong.
