Strategic wealth management for entrepreneurs and business owners

Transcription

1 Wealth and Investment Management Strategic wealth management f entrepreneurs and business owners A snapshot of Volume 4: Pre-IPO planning

2 Who should be on the IPO advisy team and what specific roles do they play in assisting a business owner? How conducive is the current tax landscape toward estate and gift planning? What are some of the valuation considerations that an entrepreneur should bear in mind when engaging in pre-ipo wealth transfer planning? How might one align a pre-ipo timeline of events and requirements with concurrent personal wealth planning? An Initial Public Offering ( IPO ) can be viewed as the culmination of an extended process of nurturing and guiding a business venture. As such, it represents a significant inflection point f an entrepreneur and his her adviss. Unftunately, the commitment required to take a company public successfully can become all-encompassing and the flurry of activity leading up to the event can supplant broader wealth planning activities. It is therefe essential that a business owner begin the preparaty process of pre-ipo planning as early as possible in the life cycle of the company. Doing so can reap benefits such as advancing an individual s estate planning goals, and greatly augmenting wealth creation potential of the IPO itself. Ideally, a business owner who is in the preparaty stages of an IPO will have already established a firm foundation f his her wealth management plan. However, even in the event that no planning has been implemented to date, there are many steps that can be taken to optimize the wealth creation opptunities affded by the public offering. From a wealth management perspective, the key strategic undertakings to consider when preparing f an IPO, include: What are some of the considerations that one should bear in mind when preparing a 10b5-1 plan? Should charitable gifts be made pre- post-ipo? > > Assembling an IPO advisy team > > Engaging in integrated pre-ipo tax, trust and estate planning > > Preparing post-ipo exit strategies > > Considering philanthropic planning > > Evaluating next steps How should a post-ipo entrepreneur begin to prepare f the next phase of his her wealth management journey? consider as I fm VOLUME 1 Fmation phase consider as I grow VOLUME 2 Growth phase consider as I transition VOLUME 3 Transitioning to family members VOLUME 4 Pre-IPO planning consider after exiting VOLUME 6 Post-Exit considerations VOLUME 5 Pre-Sale planning 2 Strategic wealth management f entrepreneurs and business owners

3 Assemble an advisy team A pre-ipo advisy team is critical to helping the business owner navigate the complexities and intense demands that emerge when preparing f the IPO process both in terms of the business impacts and the personal implications of the transaction. Although the specific configuration of the team will vary depending upon the circumstances, the advisy team of a business owner who is preparing f an IPO will nmally consist of some ( all) of the following adviss: Discuss a customized IPO strategy Underwriter An IPO advisy team is a group of adviss who both Audits & Accountants Company Counsel individually and collectively can provide business owners with the full range of professional expertise necessary to undertake the planning required f a successful initial Tax Attney Consultants public offering. When selecting an advisy team, it is imptant to identify Engage in pre- IPO structuring Pre-IPO business owner Institute a 10b5-1 plan ganizations and individuals who have the appropriate industry and sect expertise as well as a strong track Trust & Estate Attney Investment Representative recd of successfully navigating the IPO process. A histy of intergroup cooperation and codination is also of great value as this can result in a me cohesive and integrated wealth management undertaking. Wealth Advis Cpate Trustee CPA Review estate planning 3 Strategic wealth management f entrepreneurs and business owners

4 Outline an IPO/wealth management timeline There is tremendous value in aligning a pre-ipo timeline of events/requirements with concurrent personal wealth planning. An integration of the two undertakings will enhance the opptunity to benefit from a truly codinated wealth management plan. A snapshot of a sample integrated timeline Many entrepreneurs compartmentalize IPO planning as it relates to their companies and their personal wealth management. If possible, a seamless integration of the two undertakings may enhance the opptunity to benefit from a truly codinated wealth management plan. The timeline below provides a glimpse into the type of infmation contained in an integrated IPO/wealth planning timeline. Date of IPO Final 3 > > Have a clear rationale f going public in addition to an understanding of the business growth trajecty, momentum, and market position > > Meet with management and internal counsel to discuss an IPO > > Begin drafting a prospectus (Fm S-1) > > Wk with counsel to craft all policies, disclosures, guidelines and procedures required by the SEC. (Note: Guidelines should speak to compensation, governance, ethics, controls, business operations, etc.) > > File an initial prospectus with the SEC and crespond with the SEC f any required changes > > Negotiate and complete the underwriting agreement > > Begin preparations to market the offering > > File the final registration statement with the SEC > > Price the offering > > Implement a directed share program > > Carry out the road show and market the offering 4 Strategic wealth management f entrepreneurs and business owners

5 Engage in pre-ipo wealth transfer planning early Business owners often focus upon the pre-tax proceeds that they will reap by virtue of the public offering. This can prove to be a serious shtcoming as various fms of taxation can quickly erode the wealth stemming from the transaction. There exist a variety of techniques that can: > > Help mitigate potential tax issues > > Enhance long-term wealth preservation F many business owners, the simplest fm of gifting stems from the direct transfer of shares in a business to family members. Other business owners may seek to establish a trust structure that permits beneficiaries to profit from the growth in company value over time (minimizing any up-front tax impact to the business owner).* As the value of a business grows, so too does a business owner s exposure to estate and gift taxes. It is therefe critical to establish an estate plan early in the life cycle of the business when valuations are minimal. This will provide business owners with the opptunity to redistribute ownership interests to family members selectively and creatively while sidestepping many fms of taxation. This same benefit can accrue if an estate plan is developed in the time pri to an IPO. Three common wealth transfer techniques Direct gifting of shares Utilization of Grant Retained Annuity Trusts ( GRATs ) Sales to Intentionally Defective Grant Trusts ( IDGTs ) * Some imptant considerations f trusts exist. Trusts have inherent limitations and requirements that must be acknowledged/fulfilled in der f these structures to accomplish their purposes. Trusts are not suitable f all business owners. Please refer to the back of this document f definitions and disclosures. 5 Strategic wealth management f entrepreneurs and business owners

6 What is the next step in the strategic life cycle of business ownership? Once business owners have successfully completed an IPO they can contemplate Post-IPO wealth planning their post-exit planning. F many entrepreneurs, the post-ipo phase of ownership represents an opptunity to transition functionally from business owner to invest. consider as I fm VOLUME 1 Fmation phase consider as I grow VOLUME 2 Growth phase consider as I transition VOLUME 3 Transitioning to family members VOLUME 4 Pre-IPO planning consider after exiting VOLUME 6 Post-Exit considerations Barclays has adopted a tailed approach to investment VOLUME 5 Pre-Sale planning management that ensures that the issue of how to invest an individual s assets appropriately becomes a logical by-product of his her personal wealth goals and circumstances. Specifically, this methodology provides that an individual should seek to: To access all of the volumes, please follow the link below: wealth.barclays.com/us-entrepreneurs > > Understand his her wealth > > Organize his her wealth > > Understand his her risk tolerance > > Understand his her financial personality > > Invest his her wealth i F me details, please refer to the publication: Strategic wealth management f entrepreneurs and business owners Volume 4 Pre-IPO planning 6 Strategic wealth management f entrepreneurs and business owners

7 This document is f infmation purposes only and it should not be regarded as an offer to buy sell any particular investments. Imptant Definitions: Direct gifting of shares F many business owners, the simplest and most elegant fm of gifting stems from the transfer of shares in a business to family members. Generally, a trust structure (and potentially a cpate fiduciary) will be used to further augment the benefits of the gift. So long as the total value of the gift does not cause the grant (i.e., the business owner) to breach his her lifetime gifting limit (currently in excess of $5,000,000), the transfer will not result in any gift taxation. GRAT A Grant Retained Annuity Trust ( GRAT ) is a trust in which an owner transfers assets in exchange f an annuity payment back to the grant over a specified period of time. In some instances, the amount of the annuity is calculated in der to ensure that the present value* of the annuity equals the value of the property placed in the trust. In this case known as a zeroed-out GRAT the grant will not utilize any of his her exemption amount n will any gift tax be due. If the stock that has been transferred appreciates in excess of the IRS prescribed interest rate, the surplus value will accrue f the well-being of the trust beneficiaries (nmally, the children other family members of the don). IDGT An Intentionally Defective Grant Trust ( IDGT ) is a trust that is often established in der to transfer wealth f the benefit of family members, including grandchildren other remote descendants. The trust receives an initial gift of shares in the company and may then purchase additional shares from the owner at fair market value using a note bearing a permissible rate of interest** as payment. The term defective is a misnomer, but refers to the fact that f income tax purposes the iginal shareholder continues to be treated as the owner of the shares that have been sold to the trust. F this reason, the sale of shares does not trigger a capital gains tax, n will the subsequent payment of interest and principal amount to a taxable transaction. So long as the stock s appreciation following the IPO surpasses the debt payments owed to the iginal owner of the shares, the surplus value will accrue to the beneficiaries. * The present value calculation is predicated upon the prevailing IRS interest rate (the 7520 rate ). ** The rate of interest charged must be at least equal to the prevailing rate (i.e., the Applicable Federal Rate) in der to not be characterized as a taxable gift. Imptant Disclosures Diversification does not guarantee a profit protect against a loss. Investing in securities involves a certain amount of risk. You are urged to review all prospectuses and other offering infmation pri to investing. Past perfmance is not a guarantee of future perfmance. This material is provided by Barclays f infmation purposes only, and does not constitute tax advice. Neither Barclays in the US n its Wealth and Investment Management employees in the US render tax legal advice. Please consult with your accountant, tax advis, and/ attney f advice concerning your particular circumstances. Barclays does not guarantee favable investment outcomes. N does it provide any guarantee against investment losses. Barclays refers to any company in the Barclays PLC group of companies. Barclays offers wealth management products and services to its clients through Barclays Bank PLC ( BBPLC ) and functions in the United States through Barclays Capital Inc. ( BCI ), an affiliate of BBPLC. BCI is a registered broker dealer and investment adviser, regulated by the U.S. Securities and Exchange Commission, with offices at 745 Seventh Avenue, New Yk, New Yk Member FINRA and SIPC. The wealth management products offered by Barclays in the United States clear through, and where applicable, assets are custodied by, Pershing LLC, a subsidiary of the Bank of New Yk Mellon Cpation. Pershing LLC is a member of FINRA, NYSE and SIPC. Barclays Bank PLC is registered in England and authized by the Prudential Regulation Authity and regulated by the Financial Conduct Authity and the Prudential Regulation Authity. Registered No Registered Office: 1 Churchill Place, London E14 5HP. Copyright 2015 Barclays. CSNY v11 July 2015