The Case of Father and Sons

The founder and his sons had been working together in the family business for about 15 years, and it seemed to the founder that it was time to hand the business over to his sons. The founder wanted to get his money out of the business, cede control to his sons, and slowly back out of the operations.

Scarrow Yurman & Co met with the founder and the sons over the course of several months to discuss the operational, financial and taxation aspects of a succession plan.

Scarrow Yurman & Co recommended that the founder exchange his common shares for a set number of fixed value preferred shares that would be redeemable over seven years. The redemption of these shares over the seven years would constitute the removal of the founder’s equity stake in the business, and since the shares were voting shares, he would retain voting control during the redemption period.

Scarrow Yurman & Co provided instructions to legal counsel to prepare the necessary documents to give effect to the plan, including a shareholders’ agreement between the founder and his sons. The sons would have common shares that would benefit from any increase in value as they continued to grow the business and take on more responsibility over operations and financial matters. As common shareholders, they would also be taking on the risk of business failure and so truly had stepped into the lead role in the business.

All parties had a clear understanding of how the business transition was to be handled. The founder felt comfortable that during the transition he still had voting control over the business should any serious disagreements develop that might impact his ability to “get his money out.”

This new structure breathed new life into the whole business—more excitement and more enthusiasm. The sons felt they could take the business forward.

The founder continues to be a valued mentor in the business.

Succession Planning