Flat Fee Buy-Sell Agreement
A properly drafted business succession plan will assist in the orderly transfer of the business from one generation to the next or to a key employee.
What is a Business Succession Plan?
Business succession planning is a comprehensive legal strategy that sets forth what happens to a business upon the death, disability, retirement or divorce of an owner of a closely held or family business. It also addresses what happens when an owner decides to sell his or her interest in the business. Think of it as a will for closely held or family business. A properly drafted business succession plan will assist in the orderly transfer of the business from one generation to the next or to a key employee. It can also minimize tax liabilities passed down to heirs, preserve the strength of a company, provide security to business owners and their heirs, and help leave a legacy for the company founder.
Without a property drafted business succession plan, family owned or closely held businesses can face the following pitfalls.
Death of an Owner (member, partner, or shareholder)
When an owner of a business dies, it can cause problems for the remaining owners of the business if there is no succession plan in place. An ownership interest in a business entity is considered personal property and can be passed to the deceased owner’s beneficiaries or heirs as part of their estate and may also be used to satisfy creditors. Often this is an undesirable outcome for the other surviving business owners, who are rightfully concerned about the addition of a new owner without their consent. While the level of authority this new owner may possess in the business may be limited by a number of factors, such as the type of business entity involved, as well other requirements listed in the governing documents, most business owners agree that they would rather plan for death ahead of time. The death of an owner can be particularly devastating for a business since death can often be difficult to plan for and can occur at a time when the business is not properly positioned to absorb such a loss. For these reasons, the well-advised business owners should plan for the possibility of the death of an owner when creating their succession plan.
Disability of an Owner (member, partner, or shareholder)
When an owner of a business suffers from some kind of disability, it can affect the ability of a business owner to continue to manage a business or to make the same level of contribution to the business. Disability can result from an accident or an illness. Disability can be partial or complete. Every business owner or partner needs a succession plan to specify how the disability will affect ownership of the business, an owner’s contribution to the business or an owner’s exit from the business.
Divorce of an Owner (member, partner, or shareholder)
The divorce of an owner can lead to similar consequences as the death of an owner. Since an ownership interest in a business can be divided as marital property by a court in a divorce decree. Thus, the other owners must once again face the problem of the addition of a new owner which was neither planned for nor approved. With divorce rates in excess of 50%, the divorce on an owner is a very real possibility that should be considered in the drafting of a business succession plan.
Retirement of an Owner (member, partner, or shareholder)
When an owner of a business decides to retire or exit the business, it can have a dramatic affect on whether the company can continue to succeed. Likewise, the retirement or exit of an owner can affect the ability of the remaining owners of key personnel to continue to manage a business. Every business owner or partner needs a succession plan to specify the orderly transfer of a business owner’s interest in the company should he or she decide to retire or exit the business.
No company can survive without an able owner, executive, or shareholder at the helm. In the event of an owner or key member’s sudden death, illness, or retirement, businesses are often left scrambling to recover lost assets and to find a replacement. Oftentimes, I find that individuals have neglected to plan any kind of succession procedure prior to consulting a professional. I also find that those who do have a succession plan in place fail to periodically review and update the plan to match the current reality of the business. It’s not too late to start a new business succession plan or to review your current plan.
Please contact me today for a free consultation to discuss how I can help your business plan for the future.
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