Home / Insights / Does Your Business Have a Succession Plan?

Does Your Business Have a Succession Plan?

August 4, 2022

Every business should have a succession plan that provides for what will happen to the company in the event of an owner’s death or disability. This is essential to maintaining the value of the business for heirs and co-owners (if you have any). If you are an owner and don’t have a plan and something happens to you, your co-owners and family will be left to try to run and/or sell the business without necessarily knowing how to do it properly. A succession plan addresses both corporate and estate planning legal issues so consulting an experienced attorney is essential to protecting the business and its owners. Some of the key concerns to determine include the following: 

Who Will Run the Business When You Are Gone?

If you actively manage the company, someone will have to step into that role if you die or become disabled. Is there someone in place now? Could they take control immediately or do they still require training or other support? Can you start to transition them into your role? If there isn’t someone currently, what are your plans for finding an individual to replace you?

Are There Family Members Interested in the Business? 

You might think your children or grandchildren would want to take over the business but do they really? Maybe they would just want to sell it. Or maybe some family members are interested but in what capacity? Are they capable of managing the business and if not, how will you get them to that point? If you have some relatives who want the business and others that do not, how will you divide your wealth? If you have co-owners, do they want to own the business with your family members?

Do Your Co-Owners Want a Buy-Sell Agreement?

A buy-sell agreement is a contract that sets forth how business interests are treated if a partner or owner dies or otherwise exits the business. Typically, the remaining owners of the company want control over who gets the departing owner’s interest. The agreement provides that the owners or the company can buy the departing owner’s shares and sets forth how to determine the value of the shares. This helps ensure the continued operation of the company and that the co-owners are not forced to work with family members who may have no knowledge or interest in the business. 

How Can You Ensure Your Heirs Will Receive a Fair Price for Your Share of the Business?

The method for valuing the business should be included in the buy-sell agreement. However, it is also important to provide for how the business or the owners will pay for the shares. Usually, the purchase is financed with “key-man” life insurance. A life insurance policy is taken out on the life of each owner. After he or she dies, the insurance proceeds are used by the company or the co-owners to buy the deceased owner’s shares from the heirs. You must pay careful attention to who owns the policy and who is named beneficiary for this to work properly and to avoid tax pitfalls.

Business succession plans often raise a multitude of personal, family, business, and legal issues. Having the right advisors can make a substantial difference in ensuring that all concerns are addressed. Our attorneys provide comprehensive advice to business owners to help them maximize the value of their company in the present and for purposes of their eventual exit plan. Contact us to discuss your situation. 

Have Questions?

Contact us to schedule your free consultation.

* indicates required fields

FEATURED VIDEO

Smith Legacy Law:
Your Lawyers For Life

Recent Posts

What Are the Different Types of Asset Protection Trusts?

Asset protection trusts are typically used to protect assets from creditors or reduce income or estate taxes. As discussed in our post What Is an Asset Protection Trust?, such trusts are not right for every situation. Further, there are different types of asset...

What Is an Asset Protection Trust?

An asset protection trust is a vehicle for protecting your assets during your lifetime. While it can offer numerous benefits, asset protection trusts are typically only used in limited situations because the person creating the trust (the grantor) loses control over...

How to Protect Your Assets from Your Stepchildren

We’ve all heard stories about evil stepmothers, but what about evil stepchildren? Second marriages, especially when one or more parties have children from a prior relationship, come with unique concerns about inheritance. However, you can mitigate many of these issues...

Choosing a Guardian for Your Children

Your children mean the world to you and the last thing you probably want to think about is what would happen to them if you were gone. Choosing who will be the guardian of your minor children is likely one of the hardest but most important decisions you will make as a...