Is the future of your business in good hands?
If you are a business owner, or if you are thinking of starting your own business, you are familiar with the importance of planning ahead. As the backbone of your business, only you know how to run your company and which strategies to implement.
Your business is an asset. One may choose to liquidate their business when they are no longer able to manage it, or they can appoint someone to lead the business in their absence. In either event, planning ahead to solidify your wishes will benefit loved ones and business associates alike.
What is Business Succession Planning and Why is it Important?
A business succession plan identifies new company leadership contingent upon the owner’s death, incapacitation, retirement, or departure from the company. A business owner can protect their interests as well as the longevity of their business by having a solid business succession plan intact.
Business succession planning is especially important when it comes to the death of a company owner. In a time of loss and turbulence, beneficiaries and employees may not be up to the task of assessing business ownership or determining proper protocol. A business owner should be on the same page as employees and any potential successors.
Further, if a business owner dies without an estate plan, there is no guarantee that a business will last or that the owner’s wishes will be met. The assets of those who die intestate (without a will) are subject to the probate process, wherein State law controls the distribution of an estate.
Owners of family businesses should pay special consideration to succession planning as well as their personal estate plan. Some business owners may prefer to dissolve their business and distribute the assets to their relatives, while others find more value in keeping the company in the family.
The death or departure of an owner is a critical turning point in a family business. As such, a family business owner should place a high priority on keeping their family informed of future plans.
Estate Planning Tools
Have you considered what would happen if you became incapacitated? An advance directive, also known as a living will, can facilitate difficult medical decisions that must be made in case of your incapacitation. In this document, you may refuse or state preferences for specific medical treatment. You may also appoint an agent to make decisions on your behalf when you can no longer communicate these wishes on your own.
Power of Attorney
A Power of Attorney document is a key component of business estate planning. Even temporary incapacitation can have a strong impact on business operations. Unlike an Advance Directive, the personal representative named in a Power of Attorney document can make decisions regarding personal, financial, and legal matters. For this reason, your representative must be trustworthy and – if their decision-making authority is general– must keep your business interests in mind.
A Buy-Sell Agreement establishes the terms and conditions of ownership transfer or withdrawal. If you are in a business partnership, you may elect to have co-founders buy your share of the company. Alternately, this document may also facilitate the purchase of a business by an outsider.
A Buy-Sell Agreement is highly customizable to your business needs and preferences. However, as with other estate planning and business documents, the Do-It-Yourself method leaves room for error. An experienced business and estate planning professional can ensure an optimal succession plan.