Leveraged Buyouts Solve the Owner's Estate Trap

"In addition to buying divisions of large companies, it is often possible to set up highly leveraged companies to buy out owners of small businesses such as we did with Old Fox and Main Line. ADVICE: Many business owners do not realize that it is possible for them to solve their own estate tax problems by this means. If they are willing to let"

"someone like Narragansett set up a new corporation to buy all of their assets and liabilities for tax basis net worth, they can reinvest in the same enterprise as minority stockholders, and manage it for the new owners. They can have "a piece of the action" with a relatively small investment in a highly leveraged* company, and yet get complete liquidity in their original business."

"To protect the entrepreneurs and Narragansett Capital in these situations, we require the companies to take out very substantial life insurance on the chief executive officer. In addition, to protect the management group from being taken advantage of, the com- pany itself gives the group the right to sell their shares to the com- pany upon death, complete disability, or retirement at age sixty-five at the full book value of the shares. Since any successful, highly leveraged small business pays out very little in dividends, the net worth is increased every year by retained earnings after taxes."