Business Succession Plan – What You Need to Know
What is a Business Succession Plan?
A Business Succession Plan is a means of establishing continuity in the conduct of a business. Ensuring business operations remain smooth and uninterrupted when there is a time of transition within the ownership of a business. Business Succession Plans are often important for preparing one’s business for the unexpected- such as death, divorce, or loss of interest.
Who Needs a Business Succession Plan?
Most business owners should use a Business Succession Plan, whether they are large businesses or small businesses. It is especially important for small businesses in that they are often owned by individuals, friends, or family members who may be inexperienced to know what to put into a Business Succession Plan.
When Should a Business Owner Create a Succession Plan?
The best time to put together a plan is at the beginning, or shortly thereafter. The reason for this is because if it is not set up at the beginning, then there will be uncertainty down the road, which can increase the chances of disputes among the business owners themselves, their family members, and the employees of the business.
What Happens if a Business Owner Dies Without a Plan in Place?
The results can be unpredictable if an owner dies without a Business Succession Plan in place. Family members do have rights, beneficiaries under Wills have rights, heirs for people who die without Wills have rights. Those things can be affected and controlled to a degree by documentation within the company itself, for example, buy-sell agreements, shareholder agreements, and company agreements.
What Does an Effective Business Succession Plan Include?
An effective plan should include valuation, coverage for employees, a price for the shares of the company (whether those are stock certificates or membership interests) the value of those has to be known and understood by all parties ahead of time and employees have to be taken care of ahead of time to make sure that they remain with the company if desired by the owners.
How Does a Business Owner Choose a Successor?
The ownership of a company can choose a successor in a variety of different ways. Sometimes with small businesses, it is someone within the family of the ownership group, sometimes it is a trusted employee, it really depends on the circumstances of each individual business.
An important thing to consider is that not all companies can pass on ownership to just anyone. Certain entities that are owned by professionals, including PLLC’s and PC’s can only be owned by someone licensed in that field. That would include, for example, doctors, dentists, chiropractors, and attorneys.
Can a Business Succession Plan be Disputed Once it is Implemented?
A succession plan can be disputed. Employees, Owners, and family members can contest things within the plan. However, the more detailed a succession plan is and the more knowledge there is of that plan, the safer the plan is for all concerned.
How Can a Business Owner Ensure There is Enough Cash for the Business to Continue Running Once They Are No Longer in Control?
One of the best ways for a company to ensure the funds will be available in the future is to purchase insurance policies taken out by the company on certain employees. A succession plan is often implemented after someone passes away within the companies ownership group. A life insurance policy on an owner that is payable to the company or fellow owners is a way for funding to be available to purchase ownership shares and distribute them accordingly.
The Attorneys at Harris Cook, LLP Can Help You Implement a Plan to Help You Safeguard the Establishment You Have Worked So Hard to Build.
Business Succession Plans are often important for preparing for things that are unexpected, such as death, divorce, trying times, or loss of interest. Business Succession Plan can be put in place ahead of time before the need ever arises so that it is there when you need it. If you are a Business Owner and need to talk with experienced counsel about a Business Succession Plan, we encourage you to call our office.