Completing a Transition, One Step at a Time
GC Niche: Estates and Trusts
GC Team Members Involved: Stephen Wray, CPA and Ian Grimbleby, CpA
Type of Industry: Construction
Date Project Completed: Scheduled to end in 2026
Our client and his two sons co-own a full-service general contracting company based in Central California, with the father holding the majority stake in the company. Grimbleby Coleman’s initial work for the family’s company involved compliance only. However, during a year-end tax planning meeting, the father brought up his wish to eventually retire, which prompted our team to delve deeper into the family’s thoughts on succession.
The client expressed his desire to pass the company on to his two sons, who agreed they would like to continue to grow and expand the organization after their father’s retirement. Our task was to create a succession plan that would allow for a gradual, years-long ownership transition to the client’s two sons while minimizing the tax burden as much as possible.
- The family had not discussed a succession plan before.
- The brothers did not have enough resources to immediately purchase their father’s stake outright.
- The company never obtained a valuation.
Considerations and Tactics
- The topic of succession is a bit delicate for all involved; the father is not yet at retirement age, so our job was to determine his wishes and the wishes of his sons.
- The sons were already equity owners in the company but expressed their desire to fully own it after their father’s retirement and continue to build upon previous successes.
- Grimbleby Coleman worked with the father and sons to determine an appropriate valuation. The father wanted the valuation to be fair to his sons so they would not find a buyout prohibitive; however, he also wanted to be compensated fairly for the efforts he put into building the company over the years.
- Our team coordinated with the company’s attorney to draft the appropriate paperwork.
- When the succession plan was finally drafted, the father owned 60 percent of the company. One of his sons owned 30 percent, and the other owned 10 percent.
- After multiple discussions with our team, the sons eventually agreed to buy out their father’s stake in the company.
- Grimbleby Coleman worked with the father and sons to determine and complete a fair valuation for the company. The amount had to be appropriate but not overly inflated to avoid excessive capital gains taxes.
- Our team worked with the company’s attorney to finalize and sign the proper paperwork to put the plan in motion. The succession plan went into effect in January 2021.
- During the first two years of the succession plan, the sons purchased 20 percent of the company from their father (10 percent from each son). The sons plan on buying an additional 40 percent between now and 2026.
- After the purchase is complete, the father will remain employed with the company in an advisory role.
Final Recommendation and Outcome
Now that the succession plan is in place, the father has a semi-retirement date of 2026, and the sons/brothers have a buyout deadline. Barring any significant unforeseen circumstances, this succession plan will lead to a second-generation company — and, hopefully, generational wealth and ownership that will continue to a third set of family owners in the future.
This case underscores the importance of having frank conversations about succession expectations. The process on our end was straightforward; the family deserves the credit for their willingness to plan and come to a solution that would benefit everyone involved.
At GC, we work alongside your attorneys, lenders, and other professional advisors to guide and educate you through the most complex business decisions. Book a discovery call to get started on your succession planning journey. Email us at email@example.com or give us a call at 209-527-4220.