A Women s Business Enterprise in Downtown Dallas

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1 Presentation: Business Succession Planning Date: April 10, 2013 Event: Oak Cliff Chamber of Commerce ABOUT THE PRESENTER Liza Farrow-Gillespie Attorney Liza Farrow-Gillespie is a partner with the law firm of Farrow- Gillespie & Heath LLP. Ms. Farrow-Gillespie practices in the areas of business transactions, estate planning and probate, taxation, elder law, and nonprofit organizations. Before founding the firm in June 2007, Liza served as permanent briefing attorney for the late Hon. Barefoot Sanders, United States District Judge for the Northern District of Texas. Ms. Farrow-Gillespie is a former litigation associate at Cohan Simpson Cowlishaw and Wulff LLP, now merged with Jackson Walker LLP; and is a 1992 honors graduate of the University of Texas School of Law (Dean s Award; Order of the Coif; executive editor of the Texas Law Review). An avid blue-water sailor, Liza co-captained a six-year sailing circumnavigation ( ), during which she and her husband crossed three oceans and visited six continents on a 17- meter sailboat. Ms. Farrow-Gillespie is a former professional musician (Screen Actors Guild, AFTRA), and currently enjoys playing at Dallas venues with the LCD Jazz Trio (lcdjazztrio.com). Liza serves on the board of directors of No Child in Pain Foundation and the Dallas Area Parkinsonism Society, and she is a Trustee of the Dallas Opera. Ms. Farrow-Gillespie is a frequent speaker in the community and guest lecturer at the SMU Cox School of Business on topics including elder law, business succession planning, estate planning, state and federal taxation, and a wide variety of issues affecting nonprofit organizations. She has been married to Alan Farrow-Gillespie, M.D., since Farrow-Gillespie & Heath LLP 1700 Pacific Avenue Suite info@fghlaw.net A Women s Business Enterprise in Downtown Dallas

2 Awards and Events Guest lecturer, Advanced Business Law, SMU Cox School of Business, February 2013 Co-sponsored Diversity Summit, Dallas Bar Association, November 2012 Co-sponsored Dallas County Democratic Committee event, November 2012 Co-sponsored Lambda Legal annual women's brunch, April 2012 Spoke on panel at Women's Forum meeting of the Texas General Counsel Forum, January 2012 Participated on program for investiture of United States Attorney, Northern District of Texas, November 2011 Co-sponsored Annie's List annual luncheon at Westin Galleria, October 2011 Presented asset protection planning seminars at NBI event, August 2011 Elected as a Fellow of the Texas State Bar Foundation, January 2011 Named to the Board of Trustees of the Dallas Opera, July 2010 Sponsored annual luncheon of Attorneys Serving the Community, benefitting YWCA of Dallas, June 2010 Named to the editorial board of the NAELA Journal, published by the National Academy of Elder Law Attorneys, October 2009 Sponsored and participated in the program of the annual Justice Is Served dinner for the benefit of Dallas CASA, October 22, 2009 Presented "Successful Elderlaw Planning for You and Your Aging Loved Ones" at the Women's Business Council Southwest, August 4, 2009 Presented continuing legal education topics at NBI Institute "Estate Planning and Recovery for Elderly Clients," July 24, 2009 Farrow-Gillespie & Heath LLP 1700 Pacific Avenue Suite info@fghlaw.net A Women s Business Enterprise in Downtown Dallas

3 Presented "Advising the Elderly Client" at a Dallas Bar Association continuing legal education event, June 19, 2009 Spoke at unveiling ceremony for official portrait of the late Hon. Barefoot Sanders at the federal courthouse, Northern District of Texas About the Firm The law firm of Farrow-Gillespie & Heath LLP provides smart legal representation in employment law and litigation, wealth preservation, family law, corporate law, and nonprofit organizations. The firm s commitment is to deliver cost-effective excellence to each and every client. Located in downtown Dallas, Farrow-Gillespie & Heath LLP is rated AV Preeminent, the highest rating awarded to law firms, and is a Women s Business Enterprise (WBE), certified by the Women Business Council-Southwest. As of March 2013, the firm consists of ten attorneys (all female) and a support staff of four. Practice Areas Employment Law litigation and arbitration defense, internal investigations, audits, noncompetition agreements, severance negotiations, employee handbooks, HR training Commercial Litigation and Arbitration contract disputes, shareholder actions, business torts, employment disputes Mediation employment disputes, business disputes, bilingual mediation (English/Spanish) Corporate Law contracts, business formation, mergers and acquisitions, deal structuring, commercial leases, investment due diligence Wealth Preservation estate planning and probate, trusts, asset protection planning, elderlaw, fiduciary representation, trust administration, estate administration Family Law complex divorce and property settlements, child custody, guardianships Nonprofit Organizations formation, governance, counsel For more information, please visit Farrow-Gillespie & Heath LLP 1700 Pacific Avenue Suite info@fghlaw.net A Women s Business Enterprise in Downtown Dallas

4 Business Succession Planning Liza Farrow-Gillespie Farrow-Gillespie & Heath LLP 1700 Pacific Avenue, Suite 3700 Dallas, TX

5 Or... Help! I Need an Exit Strategy!

6 Small Private Business in America Small biz < 500 employees Small biz = 54% of all U.S. sales 23 million small businesses in the U.S. About 90% are family-owned or familycontrolled Of those, only 30% survive to the 2 nd generation; only 15% to the 3 rd generation

7 Business Succession Planning Triggering Events Strategic Plan The Scenarios The Toolbox

8 Key Concepts Control (right to operate the company) Beneficial Interest (right to receive profits from the company) The two concepts can be separated and transferred independently.

9 Triggering Events Retirement or Semi-Retirement Death Last Will Restraints on transferability Disability Voluntary or involuntary Definition

10 Disability Disability and Disabled shall mean a physical or mental impairment resulting from disease, injury, or other mental or physical infirmity that renders an individual unable, as determined in writing by a licensed medical doctor ( Doctor ), to perform substantially all of his or her regular duties for the Company; and such disability is expected, in the opinion of the Doctor, to last for a period of three months or longer. The Company shall make all determinations of Disability, subject to the requirements of this paragraph. In order to allow a determination to be made under this definition, each Member agrees to supply such medical information and consents to such medical examinations as may be reasonably requested by the Company.

11 Strategic Exit Plan 1. Realistically assess your situation Your family Business partners family Attitude towards key employees 2. Decide what you want to happen 3. Decide when you want it to happen 4. Make sure you have an enforceable document that reflects your intent

12 Scenarios Business Partners/Multiple Families One Family Both spouses run company Only one spouse runs company Descendants are interested in the business Competent Too young, or not knowledgeable enough Descendants are not interested in the business Valued and loyal key personnel Protect jobs Estate tax liability Multiple Generations of Same Family

13 Toolbox Buy-Sell Agreements Stand-alone Company agreement Company Agreement Trusts Living trusts Testamentary trusts Family Limited Partnership

14 Buy-Sell Agreements A buy sell agreement is a legally binding agreement between co-owners of a business that requires or allows one owner (or the Company) to buy another owner s interest in the Company if a Triggering Event occurs. Mandatory or first offer How to calculate the price Terms of the purchase (cash only or is note okay?) How to fund the purchase Procedure for the purchase

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16 Company Agreement Not typically a vehicle for transfer, unless it contains the buy-sell Can interfere with use of transfer vehicles LLC Restriction on Transfer: Problem No Member may transfer his or her Membership interest in the Company without the written approval of all of the other Members.

17 Restriction on Transfer: Operating Agreement/Bylaws Solutions Define permitted transferees Beneficiaries of a Will Trusts created for the benefit of a family member Define non-permitted transferees Spouse, if pursuant to divorce settlement Separate right to receive income from the right to vote Determine whether permitted transfer carries the right to vote, i.e., maintain control

18 Trusts A trust is an agreement in which the owner of an asset ( grantor ) transfers that asset to a fiduciary ( trustee ) who holds and manages it for the benefit of another ( beneficiary ) Any two of the three players can be the same person Revocable or irrevocable Living or testamentary Positives: Spendthrift protection; separates profits from control Negatives: Property must be re-titled; if revocable, no estate tax benefit; if irrevocable, it s inflexible

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20 Family Limited Partnerships A family limited partnership is a business entity in which an asset owner transfers the assets to the partnership, retains control over the entity (and therefore the assets), and gifts the limited partner interests to family members during the owner s lifetime Requires general partner (control) and at least one limited partner (beneficial ownership, but no control) Positives: Assets are protected from individuals creditors; entitled to a discount for estate tax purposes; present gift, so removes assets from owner s estate without removing control; very flexible vehicle for separating and transferring control and beneficial interest Negatives: Cannot hold S-Corps; start-up cost can be high (formation, valuation);

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22 Exit Strategy Action Plan Realistically assess your situation Your family Business partners family Attitude towards key employees Decide what you want to happen Decide when you want it to happen Make sure you have a document with enforceable language that reflects your intent

23 Business Succession Planning Liza Farrow-Gillespie Farrow-Gillespie & Heath LLP 1700 Pacific Avenue, Suite 3700 Dallas, TX