Do You Have a Business Succession Plan?

What is a business succession plan, and why is it so important to have? When do you need to have your succession plan in place? What are the benefits that a business succession plan can provide? How can I go about creating this plan?

Keep reading to learn more about the answers to all of these questions. 

When Should You Have a Business Succession Plan in Place? 

If you own a business, you should not wait until you retire to create your succession plan, as it may be too late. Since nobody knows what could happen tomorrow, you should start creating your succession plan as early as possible. 

This way, if something unexpected happens, the succession plan will give instructions to others, and lessen confusion in regard to what steps should be taken to keep the business alive – and prospering – for employees and loved ones. 

A business is not able to survive without an adequate owner or manager at the forefront of the business. If that owner or manager suddenly passes, becomes incapacitated, or is unable to lead the business for any reason, the operation could be left with obligations that need to be handled and debts that need to be paid. 

Business owners must be prepared. As a business continues to grow in size and complexity, having a well-thought-out succession plan becomes incredibly important. The best succession plan will benefit the owner, their successor, as well as the customers and employees too. 

What Does a Good Succession Plan Do? 

A business succession plan will designate a new owner, several new owners, or the plan can give instructions on how to sell the company – to a third party, to one or several employees, or even to someone who is already a co-owner – when the time comes. 

A business that is family-owned can face its own unique challenges if the person who runs the operation suddenly becomes incapacitated or suddenly passes away. An attorney who has experience in estate planning can help families with business formation, planning, and succession. 

However, if a business has not established a succession plan, an owner’s stake in a majority of cases will pass automatically to the owner’s heirs (as a part of the owner’s estate) or to the other shareholders (if the owner has no heirs). 

If a Business is Family-Owned, What Can Happen? 

In family-owned businesses, not having a succession plan may cause conflict among members of the family. Someone in the family may feel that they contributed more to the business than others. Proper succession planning will require time and consideration, but it is well worth the effort. 

On the other hand, if you intend to sell your business, then your succession plan should explain what your company’s operating procedures are. An estate planning attorney will be able to provide the legal advice that you will need, while also helping you through the succession planning process. 

If you do not intend to sell the operation, you may pick someone to become the new owner. This is a way to effectively provide for your loved ones after you’re gone; however, planning for your heir to inherit your business entails a different set of complications. 

Let the Right Attorney Help You Reduce Taxes and Avoid Disputes 

A succession plan may allocate a new owner or split ownership among several parties. Giving the business to your heir will means more taxes, but the right estate planning attorney can make that burden as minimal and pain-free as possible. 

For a corporation, if a succession plan has not been established, shareholders may not be able to buy the deceased or incapacitated shareholder’s shares. Conflict could erupt that may cause profits to decline. If someone with management duties has to be suddenly replaced, is the business ready? 

What Should Every Business Succession Plan Include? 

Every business is unique, so business succession plans also have to be unique. However, every good business succession plan should include the following: 

1. Clear Timeline: A succession plan can become operative on a specific date or at the time of the owner’s death or incapacitation. 

2. Named Successor: If you pass the business to an heir instead of selling it, you must allocate that heir by name in the business succession plan. 

3. Detailed Operations: Have the company’s standard operating procedures spelled out in advance in an operation manual, employee handbook, organizational chart, or another appropriate document. 

4. Appraisal: If you are selling the business, to make sure that it is sold for what it is actually worth, see what the operation is valued at, and have the valuation regularly updated. 

5. Specific Language: Be detailed and precise about an ownership change. If you mean to sell the business, indicate precisely how the sale will be accomplished. 

Should You Move Your Business Into a Trust? 

Other arrangements may be made that will transfer an owner’s or shareholder’s interest in the business into one or more trusts that may be paid to family members over time. Assets can also be split among the company’s employees if the business owner wishes to do so. 

High-quality legal advice and services are essential to the achievement of every successful business. Developing the succession plan that is right for you and your business takes the right lawyer’s assistance and insights. 

If you own a business, or if you are a shareholder, the succession plan for your business or shares should be a part of your estate plan. It should protect not only the business but also whoever will inherit your business or your shares in the business. 

Interested in Working With Us?

If you need any help regarding your business or other legal matters please reach out to us directly here and schedule a call with one of our paralegals on our scheduling page here.