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I inherited my father's company 40 years ago and have vastly expanded...

I inherited my father's company 40 years ago and have vastly expanded it since then. My son joined the business 15 years ago and is now its president. I'm still CEO and the sole owner, but at age 70 I am planning my estate. Naturally, I would like to turn the company over to my son, who will succeed me.

My problem is that I have two daughters who are not involved in the business, yet virtually all of my wealth is tied up in the business. If I split my estate evenly among my three children, my son will be a minority partner in the business he operates, which is neither fair to him nor healthy for the company. But if I give my son all or most of the company's stock, that will be unfair to my daughters, who deserve at least as much of an inheritance as their brother—especially since he has already “inherited” a good livelihood. What should I do?


The first question to ask is: “What will be best for the business?” The Golden Goose needs to be protected, since it is often the most significant asset in a family, and several generations may benefit eventually from its survival.

All too often, in my experience with client families, estate planning considerations have come first—and consequently, those who end up managing the company lose control. Management and control need to be clearly linked, in my opinion. If not, the son, who has made the choice and apparently demonstrated a commitment to manage the business, will become a minority owner, and at any time his two sisters (apparently with less knowledge of business operations) can become disgruntled about distributions or develop other priorities or, in the worst case, oust him or force a sale.

One option is to ask the son to purchase the majority position of the stock, perhaps with the business leveraging his purchase, and acknowledging his previous contributions through sweat equity. This solution works best if the other siblings did have the opportunity to work in the business and have made other life choices of their own. If the retirement of the founding generation has already been funded, the proceeds from the purchase would eventually become available for distribution to the other siblings.

It is not all bad for a second-generation owner to assume some kind of financial risk to gain control of a successful business. In fact, assuming financial risk—somewhat similar to what founding entrepreneurs have always done—can be a powerful motivator to succeed.—Ellen Frankenberg

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