Only a small percentage of businesses in the U.S. have business succession plans in place. This is not a good idea, even if a family member is ready and willing to take over. Two facts make a succession plan, actually two succession plans, necessary:
- No one knows when a business owner will die in an accident or as a result of a medical event or disease or when the owner may, for any number of reasons, abruptly decide to retire.
- However physically and emotionally prepared the next person is to take over, a host of legal documents and actions are necessary for a smooth transition.
The services of an experienced business succession attorney are an invaluable investment. Even small businesses that may seem relatively simple have complicated underpinnings in production, deadlines, inventory, outsourced services, vendors, equipment, and employee (and sometimes family) relationships. That is why it takes time to create a viable business succession plan, even with the guidance of a talented lawyer.
Why You Need Two Types of Business Succession Plans
Business succession, like so many other events in life, can occur slowly and methodically or become suddenly urgent. How life unravels is often surprising or at least unexpected, so it is wise to work with your business succession planning attorney to have both an emergency business succession plan and a long-term business succession plan. Both will have to address the transfer of legal ownership and how to keep the company stable during the transition period.
An Emergency Business Succession Plan will have to specify how the business will be operated in the immediate future if, for example, the family member destined to run it is not yet of an age to take the helm. In such a case, another individual, perhaps an older trusted employee with leadership qualities, can be chosen ahead of time as a suitable interim CEO to keep the company thriving in the meantime.
A Long-term Business Succession Plan can be more detailed and deliberate since it incorporates a transitional period during which the previous owner manages the business alongside the soon-to-be owner, showing the way and training by example, then gradually relinquishing control.
How the Business Changes Hands
There are a few different ways to divest yourself of your business, no matter when you become ready. Due to variables such as your financial circumstances, the nature of the business, and whether anyone close to you has the inclination and talent to take your place, you will no doubt lean toward one of the following options:
- Sell to a family member, a partner, or another named party or by offering shares to employees. Note: selling your business necessitates skilled succession planning to protect you from substantial tax liability.
- Use a buy-sell arrangement to transfer the business to provide a more gradual transition to new ownership. As part of the estate plan, once the original owner has died, the beneficiaries of the life insurance policy can use the death benefits to fund a buy-sell agreement. This enables one or more family members or to use the insurance money to buy the business.
- Buy a private annuity so the owner can transfer the business to family members or another person who will then make regular payments to the owner (and possibly the spouse). The annuity makes it possible for the owner not only to have a constant stream of income during retirement but to remove substantial assets from the estate without prompting gifts or estate taxes.
Like all estate planning, business succession planning provides the opportunity to control your life and your resources and protect your family in the process.
Contact Our Experienced Business Succession Attorneys Today
If you own a business in Southeastern Massachusetts or Cape Cod, it’s time to get in touch with the excellent business succession attorneys at Surprenant & Beneski. Whether your business is family-owned or not, you should give some serious thought to what you want to happen to it when you decide to retire or when you pass away. Contact us now to begin building your future and your legacy.