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If you have any queries regarding family buy-outs in the agriculture and rural business sector, please contact Myerson Solicitors on:
A solution to succession planning in a family-owned business in the agricultural and rural business sector could be a sale of the business by the senior generation to the next generation of family members.
This is commonly referred to as a family business buy-out or FBO.
This structure is similar to a management buy-out except that instead of the management team being the buyer, it is the next generation of family members.
It is not always the case that the family business passes to the next generation by way of a gift.
It is not uncommon for the next generation to purchase the family business from their parents.
There are many reasons why an FBO may be appropriate, for example:
The price adopted could be anywhere on a scale, from the price paid by a third-party purchaser to a relatively nominal amount.
It is not unusual for the terms of the FBO to be somewhere in the middle of this scale.
Affordability will need to be considered. It may simply be beyond the means of the next generation to afford or finance an FBO at full market value.
This may not be necessary if the primary consideration is limited to providing the senior generation with adequate means in their retirement.
It can be more difficult to structure an FBO to achieve fairness in the sense of equality between those family members working in the business and those who do not if the market value is not paid to the senior generation.
It may also be difficult to arrive at a price that is fair to family members working in the business if their pre-succession contribution is taken into account.
In many circumstances, a combination of planning, communication, and compromise is necessary.
Practical steps that can be taken include a careful analysis of the financial needs of the senior generation in retirement, a professional valuation of the family business should, in most circumstances, be carried out and engaging outside consultants to establish the views and priorities of different members of the family can also be helpful.
There are various types of payment structures that the FBO could adopt, for example:
In practical terms, there is no “one size fits all” structure for an FBO.
The structure of an FBO will need to be tailored to suit the specific circumstances of the business and the family members.
The solution may well involve a combination of the elements highlighted above or other arrangements.
If you are considering the FBO route, we would certainly recommend that professional advice be obtained from an early stage.
The Agricultural and Landed Estates sector group at Myerson draws on specialists from across the firm (including corporate, commercial, real estate, trusts and probate, employment, family and litigation (including commercial, probate and real estate) to provide joined-up solutions for our clients.
If you have any queries regarding family buy-outs in the agriculture and rural business sector, please contact Myerson Solicitors on: