Estate and Succession Planning for the Business Owner
Imagine that you are a business owner and your children are not interested in the business you have built but you have a long-time trusted employee to whom who you have always planned to sell the business but you never get around to it and die without a buy-sell agreement.
Maybe you are a widow whose two daughters work with you at your very successful retail shop business but you die without a buy-sell agreement and as a result your daughters fight and the business fails.
The common thread to these scenarios is the desire of the hard-working business owner to pass along her/his legacy and prosperous business so as to provide for her/his heirs long after she/he has died. If the above-illustrated business owners had a buy-sell agreement properly in place, each would have been able to provide for the long-time trusted employee and children.
A buy-sell agreement is one that relates to the purchase and sale of a business at some future date based upon terms agreed to at the time of signing. A buy-sell agreement can help protect your business and foster a smooth transition of ownership following your death, disability, incapacity, retirement, or bankruptcy. There are various ways to structure this agreement depending on your needs, as well as those of your business and family.
Focusing on death or incapacity, in order for you to have the control you want over the sustainability, direction and future ownership of your business, you must plan and work with an attorney to prepare your Trust, Will, Powers of Attorney, and Buy-Sell Agreement.
A buy-sell agreement can 1) limit the future sale of your business, 2) limit the possibility of ownership being transferred to a spouse, 3) provide a formula for a sales price, 4) determine the mechanics of your beneficiaries being able to buy each other out, so they are not forced into an untenable situation of being in business with others who are disagreeable or uninterested and thereby relieving the need for you to leave assets of equal value to each of your heirs, and 5) protect you from being in business with someone with whom you never intended.
Preventing conflict, avoiding the unnecessary loss of business funds and your family’s control of your business, and considering tax consequences, should be top priorities for you in consideration of the longevity of your business and are some of the reasons why estate planning is crucial to your family’s legacy and continued prosperity.