Inheriting a parent's large corporation.

Not an expert, but the officers of the corporation make the decisions. However, the officers are elected by, and are beholden to, the shareholders. If they want to remain officers and a shareholder controls more than 50% of the controlling stock, they should consider what he has to say. How quickly the shareholders can throw the officers out and elect new ones would depend on the by-laws of the corporation. If you want, I'm sure there could be some provision of a no confidence vote requiring elections forthwith (forthwith meaning anything you want it to).

leahzero said:

...If the parent wanted their child to be able to make big decisions right away...

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You'll have a long way to go to make that scenario plausible. The parent would have to be of unsound mind, at the very least, to trust a teenager to make big decisions for a large corporation. The other officers of the company would thwart the kid's efforts anyway.

Are you going for a C Corporation, which is what most people think of when they think of a corporation? There are other kinds of business incorporation in the US including sole proprietorship, partnership and variants like Limited Liability Partnerships, S. Corporation (limited to 100 shareholders), and Limited Liability Company (LLC).

In a corporation, the owners (shareholders) get to decide on the Board of Directors of a corporation, and the Board chooses the people to run the company e.g. the CEO. Most corporations I can think of are public, but the Hearst Corporation is an example of a large private corporation tied to a prominent family. Also, here's a Forbes list of the top private corporations by revenue.

leahzero said:

I'm looking for info on what happens when a child (age 18) inherits a deceased parent's large corporation. I know this all depends on the location, the type of business, various legal documents, etc., but I'm looking for some general info and typical scenarios. Very rarely would a kid inherit the company without some serious time in the business. And no kid at eighteen would without some severe restrictions. So I don't think you're going to find any information on kids that young. That being said, there are a lot of corporations that are family owned where the child took over in their thirties.

Let's say Company X is a privately held corporation, and the deceased parent was CEO and owned a controlling interest in the business. If the parent owned the controlling interest, there are other stockholders out there. There are legal obligations to them that the corporation has to respect. Is it realistic to posit that, after the parent's death, the child who inherits Company X can then immediately make major decisions about the sort of projects and ventures the company is working on? The larger the entity the more resistant it is to change. Reality is that the President of the US has very little power to change things in the running of the government. But legally, the child would be able to make decisions effecting the business, once probate is complete. But the CEO has to follow the directions of the Board of Directors. Is this something that would have been drafted in legal documents when the company was founded or expanded or whatnot? No.

If the parent wanted their child to be able to make big decisions right away, would they typically have to add a specific clause somewhere to ensure this? No. Usually it is the contrary that is specifically written into the will/trust.

I'm trying to create a scenario where the parent dies, and the child can immediately change the course of a certain major project the company was working on. Possibly, but the Board would also recognize that the minority stockholders have certain rights, and any loss of profitability would not be allowed. Without knowing specifically what you're proposing, it's impossible to say whether this would realistically fly in a business.

Thanks!

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Don't forget that if the child inherits more than two million dollars, he or she would have to pay estate taxes. This is going to be the biggest and most immediate problem.

Silver King said:

You'll have a long way to go to make that scenario plausible. The parent would have to be of unsound mind, at the very least, to trust a teenager to make big decisions for a large corporation. The other officers of the company would thwart the kid's efforts anyway.

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I wanted to repeat this, because it sums up my reaction.

Best of luck,

Jim Clark-Dawe

Just a minor correction on the estate tax issue. The estate of the deceased will pay the estate taxes with the remaining funds going to the heirs. Usually though, those millionaires and billionaires who have to pay estate taxes planned ahead with estate planning to take into account estate taxes.

I'm not a lawyer, but I'm fairly certain that NOTHING would happen quickly, even with a clear cut will. Probate would be long and drawn out, and you can be sure that other stockholders and board members would fight tooth and nail to keep a kid from screwing up their company. All kinds of legal actions would be filed that, even if ultimately unsuccessful, would drain the kid's coffers and stop him from taking actions that had a major effect on the company.

Avatar_fan said:

Just a minor correction on the estate tax issue. The estate of the deceased will pay the estate taxes with the remaining funds going to the heirs. Usually though, those millionaires and billionaires who have to pay estate taxes planned ahead with estate planning to take into account estate taxes.

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You're right that technically the estate pays the tax, but the problem is there regardless of who actually pays the tax. And I'm assuming that any parent that has an 18-year-old taking over the company without any sort of control would not have dealt with estate taxes. I'll admit that doesn't seem to likely, but allowing an 18-year-old take over the company doesn't seem likely either.

Calculating out estates taxes takes me quite a bit of effort, so I'm not going to do hard and fast figures. Let's say the corporation is worth ten million. Let's say the parent has a 60% interest in the stock. That means the parent is leaving an estate of six million (probably he/she has other assets as well, but let's ignore those).

Without pre-planning, the estate tax will be in excess of one million dollars. The estate is going to have two options in dealing with this. The first would be borrowing against the value of the stock, and would be the preferred approach. But the lender is going to insist on protecting the value of the corporation as part of the lending agreement, and making a major change would not be allowed.

The second way of raising the money would be selling the stock. Again, buyers of the stock are going to insist on the status quo being maintained. And the question of whether the kid would maintain his majority ownership is questionable.

And until the estate tax is paid, it is unlikely that the estate would be finished with the probate court.

Best of luck,

Jim Clark-Dawe

We have so many examples, in the US at least, of children running a successful corporation into the ground. It's really amazing, and somebody should write those stories and fictionalize them

Folks who know those stories are often under confidentiality agreements *cough* but yeah, that's entirely possible as a scenario, even if readers would not quite believe it.

18 is a problem. They don't have to be very old though, and I'm sure you can swing something. It depends on how you mold the other characters in the company, to a great extent. Probably the biggest part. If you want folks fighting the kid tooth and nail and they don't mind risking things, they'll probably fight the kid. If you are cool with having a scenario where folks are more apt to bitch and gossip and won't risk their current 'paycheck', you could swing some pretty gobsmacking scenarios. It certainly happens.

Tell more about the kind of conflict you want. Do the folks fighting the kid have to be good at running/deciding for the company, or is it OK if the parent was the one making the company successful?

Why don't things like that ever happen to me ?

I don't know about legalities on the running of the business, but I will mention inheritance tax, which in the UK is 40% of anything over £325,000. Now, this is where it can get complicated, because say someone is left a house or a company, but not necessarily cash, there are lots of rules about how to pay the tax before the property is released - mostly this means that you can't sell something in order to pay the tax on it, you have to pay the tax first. At least, that's what it was like when my friend inhertied her house.

The actual rules are very complicated, but HMRC has lost of info on it here http://www.hmrc.gov.uk/inheritancetax/

and they have a great page on valuation of stocks and shares http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/shares.htm

Is there some reason why there have to be other shareholders and a board of directors? Is there any way this company could have been entirely owned and controlled by Daddy?

Silver King said:

You'll have a long way to go to make that scenario plausible. The parent would have to be of unsound mind, at the very least, to trust a teenager to make big decisions for a large corporation. The other officers of the company would thwart the kid's efforts anyway.

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Well, parents do often have very selective vision when it comes to their little angels.

shaldna said:

I don't know about legalities on the running of the business, but I will mention inheritance tax, which in the UK is 40% of anything over £325,000. Now, this is where it can get complicated, because say someone is left a house or a company, but not necessarily cash, there are lots of rules about how to pay the tax before the property is released - mostly this means that you can't sell something in order to pay the tax on it, you have to pay the tax first. At least, that's what it was like when my friend inhertied her house.

The actual rules are very complicated, but HMRC has lost of info on it here http://www.hmrc.gov.uk/inheritancetax/

and they have a great page on valuation of stocks and shares http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/shares.htm

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Which is why estate taxes are evil, evil, evil. My parents have put their property into a trust because if they didn't, my siblings and I would have to clear cut the property, sell the lumber, and then probably sell off large chunks of the property just to pay the taxes on something that Mom and Dad have paid for and paid taxes on for 50 years. Idiotic. It's rape.

Lil said:

Is there some reason why there have to be other shareholders and a board of directors? Is there any way this company could have been entirely owned and controlled by Daddy?

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Absolutely. Nobody is going to have a large sole-proprietorship these days because of the liability risk. However, you can do a corporation but not sell shares if you have your own financing. Or, over the years, dad could have bought back outstanding shares. In that case, pretty much everybody else is just an employee and dad can do what he wants. Also, if you must have a board of directors, it's pretty easy to stack the deck -- even publicly traded companies do that.

Is our 18 year old going to have trouble asserting authority? Yeah, probably. But if he fires a few people, or has a few supporters, then he can probably make it work.

OK, I have an answer from a well respected industry professional (corporation owner since 1968).

From the horse's mouth:

This applies to all US corporations, public or private, (unless their bylaws preclude this), but not necessarily to SAs, KFTs, etc.

If she inherits (and retains, so estate planning for taxes has been covered) the majority of the stock, then she names the board of directors. So she could fire anyone on the board.

Here's a scenario: she inherits majority of stock. Calls stockholder meeting and proposes a board of directors. Puts it to a vote. She votes and is majority; her board wins. She proposes to become CEO and/or chairman of board. Wins the vote. So she runs everything. She can call a vote about nearly anything, and she'll win it.

Minority shareholders are screwed. They can sell.

Another question: Does the fact that she is only 18 matter? Suppose she were 12? Is there any legal age requirement in this situation? (This isn't my book/situation. I'm just curious.)

You might want to simplify the situation by making it a family corporation that was started by two brothers, one of whom put up 70% of the initial capital, which gave him 70% of the stock. Assuming that the estate sold five percent of the stock to the other brother to pay the estate tax, then the son would inherit 65% of the corporation. A corporation with only two stock holders doesn't have to comply with all of the regulations that a public corporation needs to handle.

Exactly how much the son could change how fast would depend on many factors, but he could name essentially all of the corporate officers, and so on.

Lil said:

Another question: Does the fact that she is only 18 matter? Suppose she were 12? Is there any legal age requirement in this situation? (This isn't my book/situation. I'm just curious.)

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I thought it might, but apparently not. The age of owning stock is what it boils down to.

PeterL: ...A corporation with only two stock holders doesn't have to comply with all of the regulations that a public corporation needs to handle.

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Just make it private, then. There's no need to make it terribly small or with few owners or anything, though. And publicly held corporations aren't required to uphold quality very much, really. Not in practice, surely.

PS - I'll be happy to get my source's credentials vetted through a mod if anyone thinks that's a good idea. I hate not being able to give a link, etc. There's the 'who the hell are you?' problem, I understand

The story can be set up so that the teen takes over the company as an inheritance without too many complications. But the greater issue, as I mentioned earlier, is why the parent would do such a thing. Are they out of their mind to entrust the corporation to a teenager?

They'd have to be, in my opinion. Most parents have a hard time trusting their teens to drive the family car, let alone run their business as a going concern after their demise.

Wouldn't that be unbelievable though to have a teen run a large company with revenues presumably in the millions? A scenario I can think of that could be believable is if the kid is a genius sort of like Doogie Howser but as a CEO instead of a doctor.

I think a very plausible scenario would be the corporation is on the blink of falling apart due to failed business strategies and management. The minority interests and other company executives are willing for the kiddo to take over because of a prescribed arrangement that will enable them to sell shares to the kiddo's trust fund at values significantly higher than the current book values.

Alternative scenario is his suddenly-deceased parents were the sole shareholders and completely controlled the corporation via a "living trust." My understanding is that upon their death, the kiddo can be automatically appointed beneficiary without subject to the direct management of the probate court (lawyer members please comment on this.) Since he doesn't have to go through courts, and there are no other investors or company executives to stop him, he can of course do anything he wants, no? But I think it is harder to convince that a very large corporation is controlled and operated like this. ETA: And the company isn't owing banks much money.

Problem #1: For Scenario A. It is easy to come up with a type of failing business. It is hard to come up with a plan to revive a dying corporation. You may have to be vague, which if this plot is a center theme to your story, may not be convincing.

Problem #2: If you don't have experience with corporate life, you may have to avoid all those office politics, board meetings, dealing with bankers/lawyers etc. Again if this part of the story will take up significant space of your story it may feel hollow.

Will small business that casts big impacts on the society work for your kiddo CEO? Or how about owner of private funds?

If the 18 year-old is trying to soothe opinions about the situation, he could call in a consulting firm to be interim management -- CEO, COO, etc (turnaround consultants do it all the time). He'd still call the final shots (if the firm isn't in money trouble), but he could act like it was all their idea, particularly if he pays them big bucks to state things the way he'd like*.

-- It's much easier if your kid is going to do a good job, btw. Is he supposed to be good or bad at the position?


* My dad's firm would never do that, because reputation points alone could be a huge problem, not to mention the immorality of it. But these things are confidential and not under regulation unless the firm is doing it with venture capitalists, a bank, towards bankruptcy, etc. So he could surely find a firm that would turn a blind eye to a lot of stuff. It's just paid advice, really.

I've been the CEO of a company valued at tens of millions of pounds. It had a single shareholder. (Not me unfortunately). Very large and valuable companies that are private (i.e. not listed) do exist, and they are far more common than most people think.

Who controls what in the company is determined by the memorandum and articles of association of the company (that's UK - but there is a US equivalent) and that can pretty much say whatever is wanted.

Private companies are far less regulated than listed companies, and since I've never worked in a listed company I can't comment on the details, but I can well believe that it would be more difficult for an inexperienced 18 yr old to end up with control of a listed company.

But it's perfectly possible for a private company. Typically, the memorandum and articles of association of a private company say that whoever holds more than 50% of the stock in effect controls the company. Because (again typically) the shareholders appoint the Directors (or Board) by a majority vote and the Board takes all decisions for the company. So if you don't like what the Board is doing, as a >50% shareholder you can replace them. With yourself if you want to.

So it is totally possible that an 18 year old could find him / herself in control of a large and valuable private company.

But I'd echo the comments of others. It's unlikely. People who own valuable companies usually go to a lot effort to make sure it will go to someone they trust to run it right after their death. So while perfectly possible, it's not very plausible.

Hope that helps.