A Women s Business Enterprise in Downtown Dallas

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Farrow-Gillespie & Heath LLP | 1700 Pacific Avenue | Suite 3700 | 214-361-5600 | info@fghlaw.net www.fghlaw.net

A Women’s Business Enterprise in Downtown Dallas

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-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 (1998-2004), 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 1984.

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A Women’s Business Enterprise in Downtown Dallas

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

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A Women’s Business Enterprise in Downtown Dallas

• 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 www.fghlaw.net.

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Business Succession

Planning

Liza Farrow-Gillespie

Farrow-Gillespie & Heath LLP

1700 Pacific Avenue, Suite 3700

Dallas, TX 75201

214-361-5600

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Or . . .

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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 owned or

family-controlled



Of those, only 30% survive to the 2

nd

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Business Succession Planning



Triggering Events



Strategic Plan



The Scenarios



The Toolbox

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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.

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Triggering Events



Retirement or Semi-Retirement



Death



Last Will



Restraints on transferability



Disability



Voluntary or involuntary



Definition

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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.

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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

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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

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

Buy-Sell Agreements



Stand-alone



Company agreement



Company Agreement



Trusts



Living trusts



Testamentary trusts



Family Limited Partnership

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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

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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.”

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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

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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

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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

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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

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Business Succession

Planning

Liza Farrow-Gillespie

Farrow-Gillespie & Heath LLP

1700 Pacific Avenue, Suite 3700

Dallas, TX 75201

214-361-5600