It is more difficult for shareholders to get value out of privately-held family businesses than it is for public companies. It is important to understand that and to make plans around it.
If you leave your heirs shares in publicly traded companies, it is easy for them to turn those shares into cash anytime they wish. Shares in most public companies can be sold quickly and easily.
If you leave your family shares in a private or family business, it is much more difficult to turn those shares into cash. There are often restrictions on who can own the shares. There is not an easily and quickly accessible market to sell the shares.
It means that money can more easily be lost, when you leave your heirs stock in a private company as the Wills, Trusts & Estates Prof Blog discusses in "The Family-Shareholder Wealth Roadmap."
One of the biggest mistakes that family businesses make, is not adequately considering the time value of money when it comes to making cash distributions to shareholders.
Companies often wait too long to make the distributions and thus the shareholders lose value. Another common mistake is using equity to finance operations, when debt financing would be better under the circumstances.
These problems can be overcome with the right assistance.
Family businesses should have financial advisers and accountants to help them. They should also seek estate planning attorneys to get help with how to pass the business on to heirs in a way that does not destroy the business.
Reference: Wills, Trusts & Estates Prof Blog (Nov. 24, 2017) "The Family-Shareholder Wealth Roadmap."
Suggested Key Words: Estate Planning Attorney