Passing On a Family Business When One Child Runs It
By Brent O'Mara
A husband and wife sat across my table in Omaha with a question they had been circling for two years. One of their three children runs the company they built, and the other two have never worked inside it.
They had come to ask me, Brent O'Mara, how to pass that business to all three of them without leaving a mess behind. My answer was that they were holding two questions at once, and they had been trying to answer them in the wrong order.
This is written for owners whose company is the largest thing they will ever hand to their children, and who have more children than operators. In that situation the order of the decisions matters more than the percentages.
Ownership and Management Are Different Decisions
Management is the question of who runs the company on an ordinary Tuesday. Ownership is the question of who holds the shares, who votes them, and who receives whatever the company distributes.
Families treat those as one decision because in the founder they were one. The person who owned the company was the person who ran it, and for thirty years nobody needed to pull the two ideas apart.
They come apart on their own the moment the company passes to a generation with one operator and two outsiders. A plan that never separated them leaves the family to find the difference the hard way.
Why Siblings Become Business Partners by Default
An equal split is the easiest sentence to write into a will. Three children, three equal shares, and the matter can be set down.
What that sentence creates is a company with three owners, one of whom decides everything. The operator sets salaries, hours, borrowing and reinvestment, while the other two hold a third each of something they can neither sell nor direct.
An estate that divides a company into equal shares can hand three children a partnership none of them would have formed on purpose.
On paper the two who work elsewhere have been treated generously. In practice they hold an asset with no market, no salary attached and no say in how it is run, and they still owe tax on whatever it throws off.
Then the ordinary disagreements arrive. The sibling running the business wants this year's profit to go into equipment, the siblings who work elsewhere would rather see a distribution, and neither position is unreasonable.
I have watched that tension sit quietly for years and then surface at the worst possible moment, usually when one of the three needs money for something in their own life. The company becomes the thing the family argues through rather than the thing the family built.
A version of this shows up when an owner is suddenly absent, which is what I was getting at when I wrote about planning for the owner who cannot come in next week. Here nobody is missing. Everyone is present, and the structure still does the damage.
Settling the Ownership Question Before the Arithmetic
The first decision is whether the children outside the company will own any part of it at all. Only once that is answered does the size of anyone's share become a real question.
Parents who work in that order usually find they have more room than they expected. The extension programs that advise farm families have made the same split for decades, and the strategies they set out for transferring a family business are useful well beyond agriculture.
One family decides the operator takes the company and the others are provided for out of everything else. Another gives the children outside the business a nonvoting interest together with a written buy sell agreement and a funded way to leave. Another keeps all three as owners and writes down in advance how distributions get decided.
None of those is the right answer in general. Each is a different answer to the same question, and the work is choosing one deliberately instead of inheriting it by default. Penn State Extension's material on transition and succession planning moves through that sequence in roughly the same way, management first and then ownership.
The conversation also belongs with the children in it, at least in part. Parents often want to spare everyone the discomfort and announce the plan once it is finished, and that choice tends to buy a quiet year in exchange for a much louder decade.
The reason to settle it while both parents are living is plain. They are the only two people who can say why they chose what they chose, and a reason heard from a parent lands differently than a reason read off a document after the funeral.
Tax treatment sits underneath all of it. Whether shares move during life or at death changes what the family keeps, and the mechanics follow the rules the Internal Revenue Service publishes on estate and gift taxes, which do not stay still.
What Planning Cannot Settle in a Family Business
The honest limit here is arithmetic. Most owners do not hold enough outside the company to make the children who are not in it whole, so the clean version of this plan is rarely available to the families who need it most.
Deciding this way also asks parents to treat the business differently from everything else they own, and many of them cannot bring themselves to do it. Treating one asset by its own rules can feel like treating one child by their own rules, and that is a hard thing to explain at a dinner table.
A plan cannot make three adults agree, either. The operator may not want to buy anyone out, the others may not want to be bought out, and no document makes a person content with an outcome they did not choose.
Timing is its own limit. An owner who is still in the middle of the work rarely has the appetite to decide who will hold the company after them, and the decision gets easier to make and harder to delay at the same moment.
What planning can do is narrow the argument down to one that the family holds while everyone can still speak for themselves. That is a smaller thing than peace and a much larger thing than nothing.
These decisions depend on individual circumstances and belong with qualified tax, legal and financial professionals who can see the whole picture at once. The families that come through this best bring them in before the documents are drawn rather than after.
A company can be divided on paper in an afternoon. Deciding who ought to own it takes a good deal longer, and that is the part the children will have to live inside.
Brent O'Mara is a Senior Wealth Advisor at Feltz WealthPlan and a cofounder of WealthPlan Group in Omaha, Nebraska. This article is general education, not individualized investment, tax or legal advice.
