Let’s suppose you are considering selling your business, but maybe you aren’t 100% certain how the business would perform without you. A strategy you could try out is becoming a passive owner. This essentially means you take a step back from the day-to-day operations and see how things go. This process is a highly effective way to begin the transition from family member to family member if you are considering passing on the business.
If the business can sustain itself with new “ownership” before you officially exit, it’s a pretty good sign that it can last on its own when you do officially leave. This strategy also allows you to help train new owners while maintaining control over things. If you decided to sell your share(s) right away, and something happened that required decisive action, you wouldn’t have the share of ownership necessary to address the problems. This could, in turn, result in failure from the new owner(s) and you wouldn’t have seen it coming by doing a complete break from the company.
Frequently Asked Questions
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Q: What are the benefits of being a passive owner?
A: The primary benefit of becoming a passive owner is that you can take a step back from the day-to-day operations.
Q: Could I still be somewhat active within the business even after I step away from the day-to-day?
A: Absolutely! Of course, it all depends on any agreements you make and your actual ownership of the business. If you still own some or all of the business, you still would have a say.
Q: What does being a passive business owner mean?
A: Being a passive business owner means that you can take a step back from the day-to-day decisions made to operate your business. Perhaps you let your management team take over, or even a second generation within your family. Being passive means you are present, but not involved with every little detail.
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NOTICE: The information included on this website is to be used only as a guide. It is not intended to cover all provisions of the law or every taxpayer's specific circumstances.