Ownership Transfer and Business
Ownership Transfer vs. Business Succession
• Ownership transfer can occur with or without a
change in management through the use of
voting and nonvoting shares.
• Business succession can be planned with or
without an immediate ownership transfer
• Business succession begins be assembling a
management team and spreading the
concentration of management responsibility
Why Consider It Now?
•Business valuations historically low
•Interest rates low
•Bonding is more difficult
•Having a succession plan in place is attractive
•Owner estate tax planning
General Succession / Transfer Strategies
• Sale to an outside buyer
• Employee Stock Ownership Plans (ESOP)
• Transfer at death or disability through an
• Developing buyer(s) from within / becoming a
Succession Organization. Hardest part usually
is finding and developing the new leader
Outside Sales and ESOPs Harder To Do In Today’s
• Limited market for construction companies
• Contractor consolidators out of business
• Venture capital firms generally not interested
• Employee Stock Ownership Plans (ESOPs)
are less viable today than they once were.
Ownership Transfer Methods
• Create new company / Wind down old company
• Insurance funded transfer at death or disability
• Bargain sale
• Significant bonuses to buyer used to purchase
• Phantom stock or nonqualified deferred
• Gifting using annual and lifetime gift exclusions
Grantor Retained Annuity Trusts (GRATs)
• An estate planning transfer technique
• Not a new strategy, but one that fits well in today’s
• Transfer of shares from one shareholder to other(s)
• Utilizes IRC 7520 rate for month of transaction.
• Death during term results in estate tax inclusion.
• Not a good technique for transfer to grandchildren as
GST allocated at end.
• Can zero-out, resulting in no gift.
• Authority for GRATs is defined in IRC.
• Valuation self-adjusts.
• Owner transfers (often nonvoting) stock to
• Owner retains an annuity interest equal to
assets transferred, resulting in zero gift.
• If assets appreciate more than IRC 7520 rate,
(2009 rates have ranged from 2.0% to 2.6%,
currently at 2.4% for May 2009), all additional
value is transferred to new owner without using
any unified credit.
Sample GRAT Calculation
•Fact pattern – S corporation contractor worth
approximately $3,000,000. Net income
$250,000. Tax on S corporation income
handled through owner withholding.
•Contractor wishes to make key employee a
10% to 15% owner.
•Normal shareholder agreements put in place.
•Uses a Zero-Out GRAT as the transfer
Sample GRAT Results
•Shareholder contributes 35% of company in non-
voting shares to GRAT in February 2009 in exchange
for an annuity of $166,788 per year for 5 years (5 year
annuity payment at 2%).
•New owner’s distributions (35% of $175,000) paid to
old owner as partial funding of annuity. Difference
between annuity value and distributions received paid
in shares of stock (shares returned).
•At end of 5 year period, new owner retains 13%
ownership in company.
•Zero gift, so no gift tax paid or exclusion used
Zero-Out GRAT “Sweet Spot”
• Low IRC 7520 interest rate
• Income generates cash flow available to distribute
without a net depletion to equity
• No debt service in company
• Equity growth (after distributions) greater than the
IRC 7520 rate
• Ability to justify a larger valuation discount
– Information about LarsonAllen and
LarsonAllen’s Construction and Real Estate
LarsonAllen Construction and Real Estate Group
Nationally Oriented CPA & Business Consulting Firm
Established in 1953 by Rholan Larson & John Allen
History & Focus on Privately-Owned, Owner-
Primary Advisor Relationship – “Total Client
Managed by the “LEADERS” culture
Ranked in the top 20 CPA firms in the U.S.;
approximately 1,400 employees; 27 offices and
client service centers in 9 states
Minneapolis, St. Cloud, Austin, Alexandria and
Eau Claire, Wisconsin
St. Louis, Missouri
Charlotte, North Carolina
Fort Myers, Naples, Orlando and Tampa, Florida
In addition, there are ten client service centers.
Construction & Real Estate Group
Construction and Real Estate industry
Focus on industry knowledge and practice development
Dedicated construction group staff of 100 professionals
Specialized A&A and tax training for all staff and principals
Construction industry association memberships and active
Serving construction and real estate clients
ranging from startups to companies with
revenues greater than $1 billion covering a
wide variety & type of contractors and real
Florida Construction and Real Estate Principals
Sue Christopher (Lead Florida Principal),
Stan Schneider, firstname.lastname@example.org, 239.280.3566
Michael Kosinski, email@example.com, 239.280.3517
Les Eiserman, firstname.lastname@example.org, 407.802.1203
Jack Rybicki, email@example.com, 813.384.2701
John Reed, firstname.lastname@example.org, 239.226.9903
Construction Operations Consulting
Information System Selection and Implementation
Business Planning and Corporate Structure
Management Training – Project Managers,
Performance Measurement and Assessment
Dispute Resolution Support
Advisory/Devil’s Advocate Services
Claims Documentation and Assistance
Cost Segregation Services