How to Use a 'Split-Off' to Transfer Ownership
Jun 23, 2010
From Legacy Moment eNewsletter (June 18, 2010)
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The Fair vs. Equal Conundrum:
Paul Smith, a second generation dairy farmer in southwest Wisconsin, owns a large dairy herd and cheese processing facility. The operation is basically two separate units operated under the same entity structure - a dairy farm and a cheese processing plant. Though the two units share common management personnel, office facilities and equipment, each unit is run as a stand-alone business with separate bookkeeping.
Paul's son Steve and daughter Jan are both active in the operation. Steve tends the dairy and Jan enjoys the challenge of sales in the cheese plant. Each child currently owns 20% of the [combined] business, and Paul owns the other 60%. Though he plans to retire and transfer full control to his children, Paul knows, based on a history of merciless sibiling rivalry, that Steve and Jan cannot work together.
Paul says, "Any plan that may transfer equal control to the children will not work, and I won't consider any options that give one
child a controlling interest over the other."
With his specific goals in mind, and assuming Steve and Jan cannot work together, Paul may want to consider a 'split-off' - essentially dividing the business into two separate and distinct business entities. Paul could transfer ownership in the dairy to Steve and ownership in the dairy to Steve and ownership in the cheese facility to Jan. Assuming the business units are roughly of equal value, each child may feel empowered to grow their respective operation free of sibling rivalry.
The keys to success in planning for succession are well-defined objectives, clear communication and action. As long as a family can define common goals, agree on acceptable outcomes and work to achieve their goals they'll find a solution to address the most pressing objectives.
The puzzle faced by many farm families.
Don't Put It Off:
Including 7 steps to guide the family succession planning conversation.
Leading the Change - Legacy Project Workshops
: The next series of Legacy Project workshops are schedule for Lincoln, Nebraska on July 20; Des Moines, Iowa on July 21; and Champaign, Illinois on June 23. Sign up online
or call the Farm Journal Events Hotline for more information (800) 909-3681.