The situation presented here is an illustration based on real life circumstances. It demonstrates the approach Whitnell might use to resolve a complex set of issues related to the transition of a privately owned business. Please note that we have changed the names and details of this client to protect their privacy.


The Client Situation

Ralph, a 72 year old man from the Midwest, was the second-generation owner of a food processing plant. Ralph had learned the business from his father who founded it in the early 1900s. When Ralph was in high school his father would have him work in several different departments in the business so he understood what it took to make the company profitable.

After college, Ralph went to work full-time in the business and showed himself as an adept manager. Ralph brought innovative ideas to the table that helped the business grow and soon they were a hub in the mid-west, with trucks bustling in and out of their bays.

Ralph fell in love with Janice and they married and had four children: Jack, Beth, Eric and Catherine. As the business grew, so did the family. In fact, the business and the family thrived together.

Jack, the oldest son, showed an aptitude for the business just like his father. Jack became the CEO after working in several parts of the company for more than 10 years. Beth, his younger sister, took over as VP of sales and proved to be a strong player in this role. Under Jack and Beth’s leadership, the company was growing by fifteen percent per year.

Eric, the third-born, wanted to be a solid contributor to the company. However, he had gone through a difficult divorce and was involved in a child-custody dispute that preoccupied much of his energy. Catherine, the youngest, was an unmarried school teacher.

While the business had made the family wealthy, it also introduced certain challenges. Ralph was at an age where he wanted to retire. While Ralph and Janice had saved and invested wisely over the years, more than two-thirds of their net worth was tied up in the business. They didn’t need the proceeds from the sale of the business for living expenses. However, they did want the money to fund grandchildren’s education accounts and to support some charities to which they felt a strong connection.

Ralph was concerned that his children could not afford to buy the entire business from him and Janice. What’s more, since the business represented the family legacy passed down from his father, Ralph wanted to retain some control over future decisions for the company.

Ralph and Jack discussed a transition plan, but they were unsure about several things including tax consequences, structure of decision-rights, a fair distribution of equity between the children involved in the business and how to take care of Catherine who was not in the business. This uncertainty led them to seek outside counsel and Jack agreed to lead this process. 


Key Challenge

While the business had made the family wealthy, it also introduced certain challenges. Ralph was at an age where he wanted to retire, but more than two-thirds of his net worth was tied up in the business.


Our Analysis & Recommendations

When we first met Jack, he described his family, the business and the situations they were trying to address. He outlined several goals including:

  • Maintaining the integrity of family relationships throughout this process and hopefully achieving even greater family unity by the end.
  • Discovering the best way to finance the transition of the business, which included:
    • Giving Ralph and Janice the wealth they wanted for education and charities.
    • Mitigating taxes during the process.
    • Avoiding a high debt-load on the business and on Jack, Beth and Eric.
    • Providing long-term income for Catherine.
  • Developing a strategy for decision-rights and control that met everyone’s requirements.
  • Taking care of key employees who had been an integral part of the business, some who were now third-generation staff members.

As we began the process of discovery to craft an appropriate plan for this family, we uncovered a disturbing fact. Ralph and Janice collectively owned ninety percent of the equity in the business. Based upon recent market transactions, it was likely that the business was worth more than twenty million dollars.

Though both were reasonably healthy, if Ralph and Janice passed away unexpectedly, a huge estate bill would be triggered. With most of the estate tied up in the business, the family would be facing a serious liquidity crisis to settle the estate.


Our Services For This Client

One of our first objectives was to assemble the right team to help guide this engagement. We served as the family business planner to quarterback the entire process. Knowing that experts in other fields would be necessary to put an effective transition plan in place, we engaged the business’s existing attorney and CPA. We also engaged the services of a professional business valuation firm to help establish the fair-market-value of the company.

This entire process took about a year and allowed for the client to feel comfortable with each step along the way. This also allowed family members to carefully consider options as they progressed through these stages.

One of our first steps was to explore with the family what the future operating model of the business might look like. We discussed the business’s need for leadership, the roles that certain family members might play and opportunities for leadership roles that might come from outside the family, including trusted employees. This activity helped define a fair equity distribution plan, based on responsibilities.

We also discussed the role of decision-rights for the business, who would be involved in decision-making and how much control they might require. This allowed us to develop a structure for voting rights that served the business well and satisfied the family.

We also helped Ralph and Janice sort through their goals and define how much income they needed from the transaction to satisfy their requirements. They had always been a very charitable family. Through this process, they were able to define how their charitable intent would live on after they had passed.

We then turned our attention to the best way to transition equity from Ralph and Janice. We brought in a valuation expert who indicated the company was worth thirty three million dollars. The valuation expert also substantiated “discounts” for gift tax purposes that would allow Ralph and Janice to gift more equity to their children without incurring transfer taxes.

We restructured the equity in the company and separated voting from non-voting shares. This allowed Ralph, Jack and Beth to maintain control over the company while still giving Eric equity in the business. We also determined how much equity should be gifted outright to the children, and how much should be financed through an installment note over a period of time.

Trusts were established to hold the equity for the children post transfer. Catherine was also granted ownership of warehouse space to help ensure her income needs were taken care of over time. 


The Client’s Results

The plan that resulted from our engagement achieved our client’s goal for a successful business transition. Ralph and Janice received the income they needed to support educational and charitable goals. Ralph maintained enough voting shares to ensure he could comfortably shape the future of the business.

With the majority of the equity gifted to trusts for the children, potential estate taxes were significantly mitigated. Through financing a portion of the sale through a long term note, Ralph and Janice received a steady income stream, while instilling responsibility and accountability in the children to make reasonable debt payments over 10 years.

Jack and Beth took a stronger equity stake in the company. This positioned them to provide the leadership the business needed for a bright future. Catherine received the income support she needed through the real estate acquisition.

But the person who may have benefitted most through this process was Eric. As we progressed through these steps, Eric reignited his passion for the business and began to take a leadership position beside his older siblings.

This client realized the goals that mattered most to them: protection of the business as a family legacy and unity of family members through a complex process.


The situation presented here is an illustration based on real life circumstances. It demonstrates the approach Whitnell might use to resolve a complex set of issues related to the transition of a privately owned business. Please note that we have changed the names and details of this client to protect their privacy. The information contained in this case study is provided for informational purposes only. No illustration or content in it should be construed as a substitute for informed professional tax, legal, and/or financial advice.