TIP OF THE MONTH - August 2007

ALL IN THE FAMILY

As a shareholder of a closely-held family corporation, how can you satisfy the ambitions of key
executives who are not family members without diluting the family ownership of the company?
There are a number of possibilities. You can:

Provide phantom stock, or a number of hypothetical shares measured based on the fair
market value or book value of the company which the executive(s) could cash in at the end of a specific period, at retirement or at some other time enabling the executive to take the cash based on the value of the shares at the time.
Establish a profit-sharing plan to give the executive a financial stake in the performance of the company. To prevent concerns about funding the eventual payment, a pension plan might be utilized.
Utilize an employment contract if the principal concern of the executive(s) is enhanced security rather than a stake in the company.
Provide titles or accoutrements such as an attractive office or a luxury car if the principal goal of the executive(s) is status.

Owners of closely-held corporations frequently raise these issues with us, and there are usually a variety of possibilities for satisfying and retaining key employees.