With this post, we continue to examine transactions between the closely-held business and its owners. As we saw last week, special scrutiny is given in situations where a business is controlled by the individual with whom it engages in a transaction because there is a lack of arm’s-length bargaining. That is certainly the case
Careful How You Characterize That…
Transactions between a closely held business and its owners will generally be subject to heightened scrutiny by a taxing authority, and the labels attached to such transactions by the parties have limited significance unless they are supported by objective evidence. Thus, arrangements that purport to provide for the payment of compensation, dividends, rent, interest, etc.,
How Should You Pass the Torch to the Kids? Carefully.
Many of us have encountered variations of the following scenario: a parent owns and operates a business; his kids are employed in the business; as the kids mature and become more comfortable and established in the business, some of them may want to assume greater managerial responsibility and to have a greater voice in the
Loan? Oh That!
Over nearly three decades, I have reviewed the income tax returns of many closely held corporations and partnerships. Quite often, on Schedule L (the Balance Sheet), I will see an entry for “loan from” shareholder or partner, as the case may be. I sometimes pause before asking the next series of questions: did the board
Good Deeds and Good Business
Many successful business people are also community-minded. They have done well for themselves and their business and, at some point, they seek to share some of their success with the communities they serve and in which they operate, and with the communities in which their employees live and work. This charitable inclination reflects, more often
Minority Shareholder? No Corporate Distribution? Too bad.
One of the most frequently encountered scenarios in the context of a closely held business is the following: individuals X and Y are shareholders of a corporation, X is the majority shareholder (60%) and president of the corporation, and X 
and Y do not have a shareholders’ agreement. Over time, the interests of X and
Family Transfers, Part V: Compensation
“Call it what you want, incentives are what get people to work harder.” — Nikita Kruschev
Most of our clients are closely held, often family-owned businesses. The current owners may be the founders of the business, or they may be a generation or two removed. Sometimes, the owners have children who are active in
Family Transfers, Part IV: Not Just Gifting
Our last post covered certain gifting techniques. Today, we will look at some non-gift approaches to transferring a parent’s interest in the family business to his or her children.
Sale
The most common means for transferring a business interest to someone is through a sale of the interest. Thus, it not unusual for a parent
Family Transfers, Part III: Choosing a Vehicle
“Blood may be thicker than water,” begins an advertisement in a recent edition of the NY Times Magazine, “but can it hold a business together?” The advertisement continues, “It’s a little-known fact that nearly 90% of U.S. businesses are family firms. All over America, people pour their heart and soul into building family companies.
Family Transfers, Part II: Gifts
In an earlier post, we noted that a parent who owns a business faces some difficult issues regarding the disposition of that business among his or her children. Among the options to be considered is a sale of the business, which would allow the parent to treat the children equally, inasmuch as each may