Courtney Collette is Chief Operating Officer of the Cambridge Institute for Family Enterprise, a research and training institute dedicated to multigenerational enterprises. Since 2011, she has led training programs, conferences, research studies and publications. As head of educational programming, Ms. Collette designs programs for seminars, workshops and online courses for family businesses around the world, including personalized private programs for families and individual organizations. She has written several publications on the success of family businesses, including articles, Harvard case studies and the book Next Generation Success, a 10-year study on the development of next-generation talent in global family businesses. Ms. Collette has spent a decade as a trusted advisor to corporate families in the areas of governance, family relations, succession and the availability of the next generation. A shareholders` pact is a legal pact between owners that contains a set of rules that: purchase/sale agreements and portability restrictions are useful in determining how a member`s interests are assessed for transfer tax purposes, and owners will be bound by the terms of the agreement. Possible methods for determining the value of a stake (i.e. the purchase/sale price) under a purchase/sale contract are (1) a fixed price per unit; (2) an independent assessment is required; or (3) with a formula. The authors recommend that the chosen method set the fair value (FMV) of interest at the time of sale, with no possible discounts. A fixed price from the date of writing is not suitable for transfer tax purposes (Bommer Revocable Trust, T.C.
Memo. 1997-380). If life insurance is not available due to a member`s age or health, it is possible to fully finance the purchase/sale contract with a change of contract that is payable over a longer period of time. The mention should be secured by assets and/or guaranteed by the other members themselves. This approach reduces or eliminates the cost of insurance transportation, but it also increases the risk to existing members and has a negative impact on the company`s balance sheet. Your document should also address the disposition of a family member`s composition when that person is divorced. Usually, the company has a “call right” on these actions. A “Call Right” is a provision that allows the remaining family members to purchase the shares. Here too, it is a matter of keeping the stock in the hands of a person who might not help the company grow. The challenge is particularly acute for a company with lower profitability — precisely the situation that can often lead family members to spend money.
Determining the value of an LLC stake before a client`s death helps identify and quantify the liquidity needs of the client`s condition.