Your Business' After-Life
By Rebecca S. Covell
Law Office of Rebecca S. Covell
You’ve built your business from the ground up. It’s your baby; it’s your life. When you die will your business die with you? Succession planning is something that all small business owners must consider. Many of us have devoted untold hours of time, talent and treasure growing a business into a thriving enterprise. What happens, however, if the key person becomes disabled or, heaven forbid, should die? Will your partner be fighting with parents, kids or cousins over control of the business? Will your business partner be in a position to step into your (very large) shoes and continue the business? How would it be valued and how would assets be transferred?
Every savvy businessperson should develop a succession plan. Key considerations will vary depending on how large your business is (one to hundreds of people), what type of entity it is (e.g., sole proprietorship, corporation, LLC, partnership), who the key people are, and what your long-term goal is (retirement income, positioning to take public, outright sale).
A business transactional attorney who also focuses on estate planning can help you evaluate options and develop a succession plan. Gathering information and consulting with your accountant and attorney can maximize the value of all your hard work. You may want to consider some of the following:
A buy-sell agreement among the principals: this document will spell out terms for allowing remaining owners to purchase the interest of an owner who becomes disabled or dies. It can contain a right of first refusal, valuation instructions and methods of funding. It may be that life insurance can be used to fund the terms of a buy-sell.
A cross-purchase option agreement: two or more professionals who are in the same field but not in the same company may enter into an agreement to purchase the other’s “book of business” if the principal becomes disabled or dies. It can also offer a way of older principals to retire.
A buy-in agreement: this document would offer the company to employees upon the retirement or death of the principal. Sometimes the principal will allow younger associates to buy in over time so that they eventually own or control the business.
Sole proprietors may want to have provisions in their wills or trusts to address the continuation of the business or arrange for its orderly sale. No one knows your baby as well as you do so taking the time to plan for future contingencies can be the greatest gift you make.
Any of these strategies should be coordinated with a will and possibly a trust to insure that your survivors enjoy the benefits of the business you have worked to hard to build.
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Rebecca Covell is a solo attorney whose practice emphasizes estate planning for GLBT individuals and couples. She has been practicing law for 28 years and brings a certain perspective and bandwidth to the topics. Rebecca also does business and transactional law. You can learn more about Rebecca Covell and her practice at www.doorlaw.com or call, 214-443-0300.
READ THIS: Legal Disclaimer Please note that the information provided is for informational use only. This is not specific legal advice and no attorney-client relationship has been created. No representations or warranties are made regarding the applicability of the information conveyed to your situation.
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