When you run a business, you may focus on the day-to-day rather than any long-term obstacles. Failure to make a business succession plan, however, could cause you and your business major problems in the future.
What Is a Business Succession Plan?
American businesses change hands all the time, but many business owners do not have a plan in place for when they must yield the reins to someone else. A medical emergency, sudden disability, or death of the business owner all can lead to a sudden need for a business transfer. If you have not asked yourself tough questions about the future of your business, it could founder overnight. Think about:
- Who will run the business after you? Your spouse, a child, or a key employee?
- Will your spouse continue to be financially dependent on the business? Or could you plan so that this does not happen?
- If your children will not inherit the business, have you provided for them in another way?
- If you would like the business to stay in the family for generations, have you made provisions in your estate plan to encourage thrift and industry among your grandchildren?
A business succession plan is a long-term plan to help you answer these questions and keep your business in good shape – even if you cannot run it anymore. It may involve a business buy-sell agreement (see below), and other planning items such as a power of attorney or a family limited partnership.
Your business succession plan and your personal estate plan need to work in tandem with each other. Coordinating the plans will help generate enough liquidity to pay off business debts and cover any estate taxes, so that your family does not have to sell the business when winding up your estate.
The Business Buy-Sell Agreement (BSA)
A BSA is a legal contract that requires an interest in a business to be transferred when one or more “triggering events” occur. The triggering events are defined in the contract. For example, triggering events could include the retirement, disability, or death of the business owner. A BSA can transfer an interest in any form of business entity, including a corporation, partnership, or LLC. Signing a BSA in conjunction with other estate planning tools can help you plan for a smooth business succession.
Want to make a business succession plan? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.