Home / Insights / How Can You Structure Your Business to Account for Future Ownership Changes?

How Can You Structure Your Business to Account for Future Ownership Changes?

March 16, 2023

When you start a business, you probably aren’t thinking about what will happen if you or another owner leaves the business. Even if years have passed since you launched, you may not have thought about a succession plan. However, it is important to plan for the future so you can maximize the value of the business for yourself, your heirs, and present and subsequent owners. This is true whether you are the one departing the business or a partner or co-owner is leaving. Much of the planning for this can be done by structuring your business to account for future ownership changes.

If you are a sole proprietor, a succession plan is straightforward because you are only taking into consideration your interests. However, partnerships are more complicated because each partner has rights, and potentially, the parties could disagree on what to do when one partner dies or leaves the business. With a corporation, any change to the structure or ownership of the business must consider obligations to shareholders. Additionally, if a business has investors, the succession plan must take into account how they will be paid back, including calculating how that affects the value of each owner’s share if they depart the business.

What Do You Want to Happen to Your Business If an Owner Leaves?

It is important to consider how your business will be structured and operated once you or other owners or officers retire or pass away. Failing to proactively consider and address this question can lead to costly conflicts in the future which could potentially damage your business.  This is particularly true with closely held businesses where there might be competition among family members as to who will be in control. Partnerships are more likely to be adversely affected by such conflicts. 

Owners/partners should discuss these issues and draft a shareholder or partnership agreement that clearly states:

  • How everything will be shared in the event the business is ever sold or divided
  • What the rights of each partner are to divest their interest
  • How to resolve differences of opinion in managing the business.

The goal is to help ensure that ownership can be changed without dissolving the business.

Have You Coordinated Your Company Documents and Estate Planning?

Company formation documents, shareholder/partnership agreements, and bylaws should allow for owners to leave or change. However, these documents also must be coordinated with the estate planning of the owners. For instance, if you want to pass along your interest in the business to your heirs, your corporate documents may need to be revised so they are in accord with the terms of your trust or will. It is a good idea to consider providing buy-sell provisions or other exit strategies that will give flexibility to your heirs or the remaining owners in how they will manage the business going forward.

This type of planning requires extensive knowledge of business and estate planning strategies. Smith Legacy Law is uniquely positioned to assist in these types of situations, allowing our attorneys to evaluate your business needs now, and prepare for future ownership changes, however you envision it. 

Contact us for a consultation today. 

Have Questions?

Contact us to schedule your free consultation.

* indicates required fields


Smith Legacy Law:
Your Lawyers For Life

Recent Posts

How to Appeal an IRS Decision

If the IRS has determined that you owe taxes, and has assessed a penalty against you or taken collection action, you may be able to file an appeal. However, there are a variety of rules and deadlines that apply when you appeal an IRS decision. Failing to comply with...

What Should You Do If You Receive an Audit Notice?

Receiving an audit notice from the IRS or state taxing authority is stressful, even if it is only alerting you of a minor issue. When you file a tax return, you represent to the government that the information is correct. However, the government has the right to...

What is Fiduciary Accounting?

A fiduciary, such as the executor of an estate or trustee of a trust, is in a position of power and control over the estate or trust. As such, a fiduciary has certain legal duties to the beneficiaries of the estate or trust. One of the key responsibilities of the...

What Type of Legal Structure Is Right For Your Business?

When you start a business, one of the first decisions you must make is what type of legal structure is right for your business. There are different types of legal entities, including sole proprietorships, partnerships, limited liability companies (LLCs), limited...