You have worked hard to build a successful business. But, what will happen to your business and all the value you have built up after you are gone?
One of the biggest risks to the future of a business is the retirement or death of the founder, or key partners. Issues such as taxes, power struggles, and a poorly prepared next generation can cause your business to fail in as little as a year after you leave it.
Business succession planning is a unique area of law that requires in-depth knowledge of both estate planning and business law. Walsh Banks Law has years of experience helping business owners carefully plan their exit plan from their businesses.
We don’t just walk you through your different legal options, but we also help you think through the business challenges different scenarios would pose to your business.
We will help you create a business succession plan that takes into account what happens to your business in the event of an untimely death, how you can retire from your business, and how you could transfer the business to a new owner.
Your business may be your most valuable and complicated asset. We can help you create a business succession plan that helps protect your assets and preserves your legacy for the next generation.
When you hire Walsh Banks Law, you gain access to trusted, experienced lawyers for strategic legal counsel and representation. Give us a call and find out how our legal services can help you. (407) 259-2426 or Schedule a Consultation
Business succession planning is a way for small and medium sized businesses to prepare for the exit of the founder. Proper succession business succession plans have contingencies for both the early death of the founder and the orderly retirement of the founder.
Business succession planning involves:
Because a business is a huge asset, it is important to properly account for it in any estate and tax planning.
Typically a business succession plan is designed to:
Most businesses fail in the first year after their founder leaves the company. When the business fails not only is all your hard work and legacy wasted, but also your family is no longer able to benefit from the asset you created.
Business succession planning is critical to protecting your business and your legacy.
The reason so many businesses fail so quickly is because the people who take over the business are often not prepared. They are not prepared or the tax issues that often sink businesses and they are not prepared for the difficulties of running a business on their own.
If you want your business to survive long after you have left it, you need to start planning now. Business succession planning is not just about planning for what happens if you die. It is also about planning for what happens when you are ready to step away from the business you created to pursue different interests and challenges.
How will you leave your business? What is the mechanism for your retirement? You may not be a Silicon Valley startup, but you still need an exit strategy from your business. You need to make sure you are financially able to leave the business and that your business is ready to run without you.
Your exit plan may include a buy-sell agreement as well as a way to fund the agreement. Your exit plan may include creating a partnership. The proceeds from your partners buying into the business may fund your retirement. There are a lot of different options. But, if you don’t have a plan you put your financial future and the future of your business at risk.
Your exit plan should also include arrangements for how you will transfer control of the business to someone else when the time comes.
While nobody likes to spend too much time thinking about what may happen if they die, it is critical that business owners have a thorough estate plan. Estate planning for business owners is different than standard estate planning. Just having a will or a trust is not enough.
You also need to have a way to deal with the assets of the business. Who owns your business? Are there shareholders? Estate planning for business owners includes not only detailing what happens with your personal property, but also taking care of any issues that may come up with transferring ownership of your business.
You may have to deal with insurance policies, stock transfers, buy-sell agreements, and estate tax issues.
Estate planning for business owners requires attorneys that have knowledge and experience with securities law, corporate and personal tax law, and business organization law.
Business succession planning requires the attorney working with you to have a thorough understanding of your business. A business succession plan is actually a collection of several different plans and documents.
Your business succession plan will include:
You and your attorney will discuss what you want to happen to your business in the event of your death as well as what your exit strategy is from your business. Once your goals are clear, you and your attorney will work to make any changes to the business organization that are needed to facilitate your plans. Your business succession planning attorney will also create the legal documents needed to facilitate the changes.
You will also likely need to work closely with insurance agents and accounts to make sure your business succession plan is ready to be implemented.
One of the keys to your business succession plan will be a buy-sell agreement. This is a contract between you and another person or persons that upon certain triggering events, you agree to sell them your business and they agree to buy the business. The triggering event for the buy-sell agreement could be anything from your death to your desire to sell the business.
You can have buy-sell agreements with a family member, or anyone else. But, you will want to make sure that you are selling the business to someone who is capable of managing the business or has plans to hire someone capable to run the business.
If you properly structure your estate plan and your buy-sell agreement, you can keep your business from falling into probate. This will give your business the stability it needs to thrive, even after you are no longer involved in it.
Buy-sell agreements can be used to help stave off power struggles for control of your business.
Most people do not have access to the kind of funds they will need to buy your business. You will need to find a mechanism to find the buy-sell agreement. The most common way to fund these agreements is with life insurance.
You will have a life insurance policy that names the person who will buy your business as the beneficiary. Upon your death they take the money from the life insurance policy and buy the business from your estate. This way your family gets the money from the business that you have works so hard to build and the business lives on under the control of your chosen successor.
However, life insurance is not the only way to fund a buy-sell agreement. Obviously, life insurance will not provide you with an exit strategy if you choose to retire. Other ways to fund a buy-sell agreement include opening a special account where the future buyer makes regular payments to over the years. Once you decide to leave you cash out this account. The buyer will continue making payments until the agreed upon price has been fully paid. This gives you a reliable cash flow from your business, even after you leave.
If your business has shareholders you will need to make sure that your business succession planning takes securities laws into account. Any sale or transfer of stocks will need to comply with state and federal securities law.
You will also want to make sure that you have set up the stock issuance in such a way that the other shareholders will not be able to out vote your chosen successor or succession plan.
If you want to make sure your business continues to thrive for decades after you leave, you need to make sure that you not only designate someone to run the company after you, but that you choose someone who is prepared and competent enough to help your business continue to succeed.
One of the most common mistakes business owners make is to put their children or grandchildren in charge of the business when they are not ready or not interested in the business.
There is nothing wrong with passing your business on to your family. However, you need to take steps to make sure they are full prepared to run the business.
You and your attorney may want to talk about the best ways to prepare your successor and if you want to divide ownership and management of the business.
The legal structure of your business can make a big difference when it comes to business succession planning. Many small and medium businesses, especially in the case of professional service providers, are sole proprietors. While this structure may work well when you are the sole owner and manager of the firm, it can make business succession planning unwieldy.
You may be able to achieve your business succession goals much easier by converting into a closely held corporation or a pass-through organization like an LLC.
Another reason to change the corporate form when making business succession planning is for tax planning purposes. You have fewer options for tax planning when you own the business as a sole proprietor.
Business succession planning is not only a way for you to preserve your legacy and protect your business. It is also a way you can show your employees that you value them and want to make sure they have a place to work long after you leave the business.
Business succession planning is an important part of being a responsible business owner.