The overriding answer is, in almost every conceivable case, always. Protecting your business and operations, and safeguarding future owners and heirs, should be a top priority when determining how your business will operate and under whose leadership when you are no longer the owner. You should review your business succession plan at least annually and when changes in tax laws, valuation, industry developments, or family dynamics have occurred.
A business succession plan allows a business owner to hand over their business in the event of the owner’s exit due to any number of reasons including retirement, disability, or death and allows the business owner or owners to control what happens to the business. A properly developed plan for any type of business should have at a minimum a well drafted agreement including provisions regarding an owner’s exit and how it will be managed. If an operating agreement already exists without these provisions, it is possible to execute a buy/sell agreement to indicate the wishes of the owners/members/shareholders.
One common misconception of business owners is that a business entity is separate from their personal estate. However, this isn’t the case, and you can’t ignore the impact that a business may have on your heirs upon your death. Even if a business is not being left to surviving heirs, it’s imperative that this is outlined clearly in your final plans. In the state of Texas, failure to plan properly will result in your last will and testament determining the disposition of your business interests. If you die without a will and no business succession plan, then your business interests will pass per Texas statute, and this may be far from what you envisioned for your life’s work.
Regardless of who you wish to take the reins of your business upon your departure, there are several key things to determine at the onset of the planning process:
Determine a timeline for when the succession should take place, either on a predetermined date or in the event of death or disability
Select a successor: If no specific party has been identified consider family members or other potential candidates
Document your standard operating procedures, including an organizational chart, employee handbook, operations manual, and any other recurring meetings or processes to help you determine qualified candidates
Value your business, optimally engaging the assistance of a professional to establish your company’s worth
Define a specific path outlining how a successor may purchase the business, including options such as life insurance, loan, or seller financing
Once you determine who will be taking over your business and how that transfer will occur, it’s time to engage the expertise of a professional who can execute the proper paperwork to make sure that the business will seamlessly transfer to the intended new owner(s). To help you review or create a succession plan for your business, contact Angela Odensky at The Law Office of Angela Odensky at info@odenskylaw.com.
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