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In estate planning, there's a saying, "own nothing but control everything." The approach is to transfer 99% ownership of the private company into a non-profit
by ww520 5y ago
In estate planning, there's a saying, "own nothing but control everything." The approach is to transfer 99% ownership of the private company into a non-profit trust and to retain 1% ownership which has the controlling vote. The 99% non-profit trust has tax benefit and asset protection benefit. You only have to pay estate tax on the 1% of what you own when passing down to next generation. When someone sues you for your asset, you only have to pay 1% worth of the money since that what you own. But you still retain control of the company and reap benefit from it (directing dividend payment, hiring relatives, etc).
Edit: a more proof version is to put the 1% into another entity like a C-corp or a trust that you control. Estate planners have a field day dreaming up these schemes.
- b9a2cab5 5y agoAnd the only public shares are the weak voting ones, so in order for the lawsuit winner (or the state for taxes) to reap their returns they lose the voting power of the shares. I see a lot of the newer IPO'd companies using this type of scheme.
- deleted 5y ago[deleted]
- KirillPanov 5y agoDo you mean to say that the family-owned shares lose their extra voting power when transferred? A bankruptcy judge would not hesitate to void this clause if those shares were being transferred by virtue of bankruptcy seizure.
- Xylakant 5y agoI’ve seen that in multiple founding contracts for private companies and no lawyer ever flagged that. I doubt a judge will collect it. The mechanism is usually called Einziehung der Geschäftsanteile, basically the remaining shareholders can force-collect the shares of the bankrupt shareholder. A suitable compensation is required. See for example this random reference (German) https://kuhlen-berlin.de/glossar/einziehung-von-gesch%C3%A4ftsanteilen-der-gmbh https://kuhlen-berlin.de/glossar/einziehung-von-gesch%C3%A4f... The shares immediately loose all voting rights in that process. The reason is to prevent a potentially hostile party from entering the shareholder group. Edit: Here’s a better reference with an example what such a clause in the companies charter could look like: https://gmbhg.kommentar.de/Abschnitt-2/Einziehung-von-Geschaeftsanteilen https://gmbhg.kommentar.de/Abschnitt-2/Einziehung-von-Gescha...
- fxtentacle 5y agoNo, it's actually common, at least in Germany. You can have a clause that allows the other shareholders to force someone out if they argue that it is necessary to retain the stability of the company. You have to pay the forced-out investor for his/her shares, though.