Glossary of Key Terms
As with any specialty, there is a vernacular that is specific to succession planning. Certain words can hold a different meaning if taken out of context. That’s why we’re providing a glossary of commonly used words and phrases in succession planning. Please refer to this glossary often as you follow the Legacy Project. It provides a valuable foundation for understanding what succession planning means to agricultural business today.
Active: Family members working on the farm or in the agribusiness.
Agripreneur: A person who establishes and/or is dedicated to growing a business—farm, ranch, custom operation, processing facility, etc.—in the agriculture industry.
Buy/Sell Agreement: A formal agreement facilitating ownership transfer based on triggering events—death, disability, dissolution or divorce. Common provisions of a buy/sell agreement include: valuation, applicable discounts, terms, conditions
Contingency Plan: Provisions in a comprehensive succession plan that mitigate the financial devastation caused by untimely death, disability and/or deteriorating health.
Corporation: An organization that is recognized as a separate legal entity and distinct from its owners. Corporations are owned by stockholders (shareholders) who share in profits and losses generated through the firm’s business operations. Corporations have three distinct characteristics:
(1) legal existence;
(2) limited liability; and
(3) continuity of existence.
Discounts: (1) Amount deducted from the selling price of a partial interest because it cannot be easily resold (lack of marketability); (2) Amount deducted from the selling price of a partial interest because it represents a minority interest in the firm (lack of control).
Dispute Resolution: A formal process for resolving disputes—may involve a facilitator, mediation or arbitration.
Durable Power of Attorney: A legal document that enables an individual to designate another person, called the attorney-in-fact, to act on his or her behalf, even in the event the individual becomes disabled or incapacitated.
Employment Policy: A written statement outlining the necessary education, experience and conditions for employment in the family operation.
Entity: A standalone business unit usually referred to as a sole proprietorship, partnership, LLC or corporation.
Estate Plan: A plan to transfer an individual’s wealth to his or her heirs while mitigating the estate tax and minimizing the transfer obligations.
Fair Market Value: The dollar value that a willing purchaser may pay for an ownership interest from a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the facts.
Family Limited Partnership: A family organization with one or more general partners, who manage the organization and assume debts and obligations, and one or more limited partners, who are liable only to the extent of their investments.
Health Care Directive: A durable power of attorney specifically for health care matters. It may designate the terms and conditions for health care in case of incapacitation.
Inactive: Family members not working on the farm or in the agribusiness.
Interstate: A term used when a person dies without a will.
Irrevocable Life Insurance Trust: A trust into which the grantor permanently transfers life insurance and cannot alter, amend or terminate the arrangement or retain any incidents of ownership in the life insurance.
Leadership Development: A formal or informal plan of professional development. A complete plan includes educational and experiential elements. It may also include a mentoring relationship and/or networking opportunities.
Limited Liability Company (LLC): A business structure that combines the limited liability feature of a corporation with the single-taxation feature of a partnership or sole proprietorship.
Mentor: A senior or experienced agribusiness owner who advises, counsels or guides
an inexperienced, new or aspiring agripreneur in the aspects of business growth and development.
Operating Agreement: A set of standard operating procedures and management policies specifically designed to maintain the operational integrity of a farm or agribusiness. It may include a decision-making process, income/expense management, dispute resolution, ownership transfer and other terms and conditions of business ownership/management.
Passive: Family members not working on the farm or in the agribusiness.
Protégé (Mentee): An inexperienced, new or aspiring agripreneur who is seeking the advice, counsel or guidance of a senior or experienced agribusiness owner.
Succession: The process of transitioning ownership from one generation to the next. The elements of a comprehensive plan for succession include: financial security, management continuity, ownership transition, leadership development and estate planning.
Trust: (1) Irrevocable: A trust that cannot be changed, amended, altered, or canceled;
(2) Revocable: A trust established during a grantor’s lifetime that is used for the placement of some or all of a person’s property.