ALP: I would like to share ownership of my business with my family to get them interested and shift assets out of my estate. Can I do that without creating problems?

June 2005

This is a typical objective. To accomplish that goal, it’s a relatively easy process to create voting and nonvoting interests.  Children can be given nonvoting interests, while the owner retains the voting interests and can still set salaries and decide when and how much to distribute to shareholders. Such an approach is fairly common.

A better approach might be to separate the business into two pieces.  One would operate the business and decide what goods or services to provide, markets to serve, prices to charge, etc. (the “Business Entity”).   The other would own certain assets needed by the business such as machinery, vehicles, or real estate (the “Asset Entity”). Asset Entity might acquire assets from Business Entity or a third party then lease them back, or it might receive them in a distribution from Business Entity. 

Asset Entity could have voting and nonvoting interests as described above. Beyond that, the two entity approach has several advantages over the single entity approach:

There are a several ways to transfer interests in a business to family members without giving up control.    Using two entities might be better than one to accomplish that goal.