There is a lot to be learned from growing up working in a family business. Here are but 7 lessons you can learn:
When parents work outside the home for various companies, it becomes easy for children to forget that their parents have other roles than that of parent. Their parents’ jobs aren’t as real for them as it is for the children of parents who run a family business. Children often become involved in family businesses whether they like it or not.
In many family businesses, especially smaller ones, it isn’t uncommon for several generations of a family to work together. Children who grow up working in a family business often have the unique opportunity to work alongside their grandparents. This allows them to see their grandparents in a whole new light.
Children who grow up working in a family business learn firsthand that it takes hard work and a lot of planning in order to be successful in business. In many cases, they are surrounded by examples of adults working hard their entire lives. Many children who grow up working in family businesses can’t help but grow up to work hard as well.
Working in a family business blurs the boundaries between business and family life like nothing else can. Children who also work for their parents need to have distinct boundaries set. They need to know when their parent is acting as their mother or father and when their parent is acting as their boss.
Everyone who is successful owes his or her success to someone else giving him or her an opportunity. Nothing quite demonstrates this than the history of family businesses. No one can do it alone. We all need to rely on friends and family at some point in our lives.
Even if the growth of a family business appears to be due to the actions of one person, it couldn’t be further from the truth. Every successful family business (or any business) owes it success to the hard work and dedication of many people over several years. It just doesn’t happen over night.
When children are born into a family that owns a family business, they are greatly influenced by that business throughout their lives, even if they aren’t given (or take) the opportunity to actually work there. Either way, they grow up watching their parents and grandparents work hard to build a business, and having customers call or even come to the home is not an isolated event. Business matters can permeate family life.
Growing up surrounded by a family business (or family businesses, as the case may be) can be a unique experience that can teach lessons for a lifetime. Even if you didn’t grow up in a family business, there is still a lot to learn from the experiences of others.
If you’re looking for a prudent way of investing your accumulated wealth, start an LLC (Limited Liability Company) or a family holding company. Your portfolio manager will recommend you to set up an LLC for one or more of the following reasons:
A family holding company serves as a perfect front for wealthy families to use (i.e., invest) their assets as a common pool to maximizing ROI.
Once the family members incorporate a family holding company via an LLC operating contract, the corporation will be able to invest in almost anything from shares, real estate, and stocks to patents, startups, and mutual funds. LLCs stand to gain from a host of benefits, including enjoying immunity from losses. For instance, if a wholly-owned subsidiary becomes insolvent, the worst loss that the family holding will experience is a plummeting of its net worth.
Moreover, the creditors of the bankrupt subsidiary will not be able to chase the LLC for making good the losses. Then again, the holding company can create multiple subsidiaries for limiting not only its legal and financial liabilities but also of the subsidiaries. LLCs also allow individual family members (shareholders) to safeguard their assets.
Technically speaking, assets are held by the family holding company instead of the individuals, thereby protecting them from lawsuits, arrears, and other liabilities.
A family holding company, also referred to as a limited partnership, LLC or parent corporation, invest in sufficient stock of a subsidiary company. Owning a significant proportion of stock in one or more auxiliary or subordinate firms offers the holding company strategic control and leverage over their administration policies. Despite holding a bulk of the assets of subsidiaries, the LLC does not take an active part in managing the subsidiary companies’ day-to-day business activities.
The sole objective of constituting a family holding company is to exercise control over other corporations, regardless of whether they’re LLCs or limited partnerships. Family holding companies might also own other kinds of assets, including but not limited to stocks, shares, and real estate. When a holding company buys the entire equity of a company, the latter becomes a “wholly-owned subsidiary” of the former.
Usually, an LLC operating agreement is drawn up for establishing a family holding company or a limited liability company. The contract could prohibit individual members from disposing of their stock without the consent of the other family members. Family members might also be required to contribute small cash donations towards the holding company regularly as per the operating agreement.
Again, the family members may not be permitted to invest in specific asset types beyond a certain limit. If a family so desires, it can retain full control over the holding corporation by appointment grandparents or grandchildren as supervisors. These supervisors or managers will be responsible for overseeing the day-to-day business activities of the family holding company.
When a business wrests controls over 50% of the equity in another company, it becomes a holding company. A holding company is generally formed to acquire control over the subsidiary firm, achieve economies of scale, and eliminate competition. There are different types of holding companies based on the nature of their incorporation.
The main types of holding companies are:
An LLC marks the transition between a partnership and a large corporation or conglomerate, and therefore, it is a hybrid entity. Rich families form family holding corporations for gaining control over a range of assets but specifically for real estate planning. The majority of wealthy families establish holding companies for transferring assets to their subsequent generations without passing on the burden of the estate or gift taxes.
A holding company enables the owning family to retain control over their assets during their lifetime at the same time keeping liabilities to a minimum. Families owning holding companies want the familial assets to stay intact for generations to come. Establishing a family holding company not only allows you to fairly allocate your assets to your children and grandchildren but also diminishes the burden of gift and estate taxes on the latter.
On the other hand, you continue to have full control over the family holding company’s assets as long as you’re alive.
Affluent individuals and families institute an asset protection trust chiefly to steer clear of the effects of bankruptcy, divorce, gift, and estate taxes. Put, well-to-do families set up asset protection trusts for safeguarding themselves from creditors, courts, and governments. An asset protection trust enables creditors to come to a mutually agreeable settlement with their debtors, thereby allowing both parties to avoid expensive litigation.
However, creating a trust for asset protection entails fulfilling complicated regulatory prerequisites. For instance, once such a trust is constituted, the terms and conditions mentioned in the same become irrevocable or irreversible. If the signatories to the trust ever feel the need to change any clause in the trust, they’ll have to mandatorily seek the approval of all the beneficiaries.
At the same time, the asset protection trust comes with a spendthrift provision or clause. The idea behind inserting the spendthrift clause is to prevent the beneficiary from dispensing with his bequest or legacy. Additionally, the clause safeguards the recipient from the clutches of creditors who may want to attach and usurp his inheritance.