Continuing the Legacy: Transferring Stock

February 13, 2023 | Iowa's Multi-Generation Companies are Built to Last Michelle Hutson, CPA/ABV, ASA, BCC Advisers,

Family-owned businesses are the backbone of our communities, and that is not a hyperbole. U.S. Census Bureau statistics indicate 90% of all businesses are family-owned. Baby Boomers (those born between 1946 and 1964) own approximately 40% of those businesses and are expected to transfer ownership and wealth to the next generation over the coming decades. Known by some as the “great wealth transfer,” this is expected to be the largest transfer of generational wealth in American history, which emphasizes the importance of successful ownership transition. 

Ownership transitions can be structured in a variety of ways to best suit a particular business. Utilizing voting and non-voting classes of stock is one way to facilitate transition goals. Non-voting shares can be transferred when an owner wants to transfer wealth to the next generation but retain decision making authority. If an owner prefers to transfer some, but not all, of their ownership responsibilities, minority interests of voting shares may be assigned. 

Establishing a business is one means to build a legacy and produce a generational labor of love. To preserve this legacy and its community impact, it is important for business owners to plan for the great wealth transfer by developing a succession plan. Though critical for business continuity, over half of small business owners have no plan in place for this major transition. 

A detailed succession strategy will create a structure for your transfer, whether passing down the business to a family member or utilizing another form of exit. This structure will assist you in achieving your exit goals and support cementing your legacy. Perhaps your plan involves transferring stock to your children and grandchildren. Perhaps it’s training the next generation for leadership in your company. How do you want to leave your legacy?