Family Business Planning

Family-owned businesses sit at the intersection of two practices that rarely speak to each other in most law firms: business law and estate planning. We have built our practice around the recognition that they cannot be separated. The shareholder agreement and the trust have to agree with each other; the buy-sell and the estate plan have to share a single valuation framework; the founder's retirement and the next generation's readiness have to be planned in the same conversation.

For more than four decades, Sanger & Molever has counseled California family enterprises through the long, gradual work of governance, succession, and intergenerational transfer. The clients range from first-generation founders building the company their children may one day inherit to fourth-generation families whose business is older than the lawyers advising them.

Governance for a family enterprise

Most family businesses begin with a handshake among siblings or between a founder and a spouse. They graduate, sometimes only after a crisis, to written documents: an operating agreement, a family employment policy, a dividend policy, and the beginnings of a board structure. We routinely draft each of these documents for families who have never had them and refresh them for families whose existing documents have not been read in years.

The most useful governance work we do is rarely the most dramatic. It is the family employment policy that prevents the company from becoming the employer of last resort for distant cousins. It is the dividend policy that protects working capital from family pressure. It is the board structure that gives non-family executives a voice and gives family owners a disciplined forum for decision-making. Each of these reduces the likelihood of the conflict that destroys family enterprises.

Succession and the next generation

Succession is the question every family business eventually confronts and most do not answer in time. We approach it as a multi-year project, not a single document. The founder's timeline, the readiness of the candidates in the next generation, the role of in-laws, the equalization of non-business assets among children who will not be involved in the business, the choice between insider succession and outside sale—each is a distinct decision that benefits from being made before circumstances force it.

For families that intend to transition the business to one or more children, our work coordinates the management transition with the ownership transition. Lifetime gifting of non-voting interests, sales to grantor trusts, recapitalization to create voting and non-voting classes, and the gradual reduction of the founder's voting stake are all techniques we have implemented many times. Each is sequenced against the family's tolerance for change and the next generation's actual readiness.

Buy-sell agreements that coordinate with the estate plan

The buy-sell agreement is the document where the business and the estate plan most often collide. A buy-sell that requires the company to redeem a deceased owner's interest at fair market value will reduce the surviving family's working capital at the worst possible moment. A buy-sell that pegs price to a stale formula will produce a windfall for one side and a loss for the other. A buy-sell that never names a successor for the founder's seat will paralyze the company at the founder's death.

We draft buy-sells that coordinate with the family trust, integrate properly funded life insurance, contemplate installment payouts where lump sums would damage the company, and refresh the valuation methodology at intervals so the document remains useful as the business grows. Each is built with the inevitable triggering event—death, disability, retirement, divorce, departure—already imagined.

Equalization among children

Most families with operating businesses face a hard equalization problem: the business is the largest asset, but only some of the children work in it. Leaving the business to all children equally produces the predictable conflict between operating siblings and passive ones. Leaving the business only to the operators leaves the non-operators with substantially less inheritance unless non-business assets can equalize. We help families think through this question—often the single most emotional decision in the plan—and structure the plan around the family's actual values rather than around abstract fairness.

Tax-efficient transfer strategies

For families whose business value approaches or exceeds the federal estate and gift tax exemption, lifetime transfer planning carries weight that testamentary planning cannot match. We routinely implement annual exclusion gifting of non-voting interests, irrevocable life insurance trusts to provide liquidity, intentionally defective grantor trusts coupled with installment sales, grantor retained annuity trusts where the business has a defined growth runway, and family limited partnerships where the appropriate facts support the structure.

When succession means sale

Sometimes the right answer is not internal succession but sale— to a strategic acquirer, to a private equity buyer, or to an ESOP. Where that is the family's chosen path, our M&A practice handles the transaction; our family-business practice handles the conversation that precedes it. We help families reach the decision honestly, prepare the company for the sale process, and structure the proceeds in ways that achieve the family's longer-term goals.

If you are weighing succession, refreshing governance, or simply beginning to think about how the business will move from one generation to the next, we welcome the conversation. The right time to start is always earlier than it feels.