Business Succession Planning
- Business Succession Planning
What is Business Succession Planning?
A business succession plan allows a business owner to hand over their business in the event of the owner’s exit due to retirement, disability, death, or other reasons. Having a business succession plan in place allows the business owner or owners to control what happens to the business rather than relying on state law.
In the event of a death or disability, without a succession plan in place state law steps in to determine a company’s future. It’s vital to build a succession plan that addresses disability, mental impairment or death – including the establishment of leader and owner roles, with a plan for an orderly transition.
Benefits of Early Planning
Minimizing Tax Costs
Holding Business Assets in Protected Structures
Continuing the cash flow to the business owner post succession
Ensuring a successful transition of management to the family members
FAQs
A well drafted agreement for any type of business can include provisions regarding management of an owner’s exit. If an operating agreement already exists without these provisions, it is possible to execute a buy/sell agreement to indicate the wishes of the owners/members/shareholders. It may also be possible to amend the operating agreement to include these provisions.
The most important consideration in any planning is the people involved. For small, family-owned businesses, it is crucial to know whether the next generation is interested in running the business. Establishing whether one or all children want to continue the business will help guide your plan and protect the interests of all of your heirs.
There are a few ways to plan for your exit. A well drafted agreement could include provisions regarding an owner’s exit and how it will be managed. This is true for any type of business entity. If an operating agreement already exists without these provisions, it is possible to execute a buy/sell agreement to indicate the wishes of the owners/members/shareholders.
If you do not have an agreement that outlines your succession plan, then your business assets will have to go through probate and the distribution will be managed in accordance with state law.
At a minimum, you should start the planning process at least five years before planned retirement.