Business succession planning is estate planning for businesses and an essential tool to use in protecting business interests as well as passing them to family members and/or business partners upon death. A business succession plan dictates what happens when a business owner passes away. Succession planning is also very important in family businesses for passing business interests down to family members. If there is no succession plan, the business and all of the time and effort put into it may be lost. Hillel L. Presser, Esq., MBA of The Presser Law Firm, P.A., Asset Protection Attorneys, offers tips on passing business assets to the next generation.
1. Business Succession Planning Defined
Business succession planning is the strategy for which a business chooses its successors to manage and run the company in the event of a planned or unplanned retirement. Succession planning is not a one-time event; succession plans should be reevaluated and potentially updated each year or as changes in the company occur. For small, family-owned companies, business succession planning often means training the next generation to take over the business. A bigger business might prepare mid-level employees to take over higher-level positions in the future. With partnerships, business succession planning may include obtaining life insurance policies on the disability or lives of the partners.
2. Reasons to Seriously Consider Business Succession Planning
There are three major benefits that succession planning can offer your company. First, succession planning allows for assurance of an agreeable price for a deceased partner’s share. Second, succession planning allows for the ability to buy the deceased member’s share quickly and with no liquidity with policy benefits. Finally, succession planning allows for a timely settlement of a deceased partner’s share of the business with minimal effect on a business’ operation.
3. Purchase Life Insurance to Fund the Succession Plan
One common strategy for succession planning is purchasing life insurance for each of the business owners (whether through the business or personally) and naming the business or another owner as a beneficiary. In that case, the proceeds of the insurance, in the event of a death, go to purchasing the deceased owner’s interest. This avoids messy probate claims and auction – allowing the business to function uninterrupted.
4. Create a Bulletproof Operating Agreement, Partnership Agreement, or Shareholder Agreement
Another great strategy is to make sure your operating, partnership and/or shareholder agreements are bullet proof and dictate exactly what happens when an owner or member of the business passes away. This way, there is no room for interpretation as to what happens to the business. Also, make sure your agreements state that the business will not dissolve upon a member dying and expressly state an alternative result.
5. Keep the Business Succession Plan and Estate Plan Consistent
Make sure your personal estate plan refers back to and is consistent with the provisions of your business operating, partnership and/or shareholder agreements and your business succession plan. That way, there will be no contradictions as between your personal estate plan and your business’ estate plan.
The Presser Law Firm P.A., Asset Protection Attorneys, represents individuals and businesses in connection with the establishment of comprehensive Asset Protection plans that incorporate both domestic and international components.
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“For every 60 minutes you spend making money, spend 60 seconds thinking about how to protect it!” states attorney Hillel L. Presser, Esq., MBA regarding the importance of protecting your assets proactively.
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