Succession Planning:
Do you have a buy sell in place? Have you created a market for your business ownership in the event of your death – both as to a price and a buyer? Have you created an agreement that will keep your partner’s spouse and/or children out of the business in the event of his/her death? Have you provided, in the event of a divorce, protection from you and your partner’s spouse owning a percentage of the business? These are some of the concerns that business owners face when confronted with succession planning.
What is succession planning?
Succession planning is simply an agreement set in place that will allow your business to be passed on to a party, ensuring that the family members involved are adequately compensated and that the value of the business is not lost in the transition. The most commonly covered aspects in the plan are: a partner selling their ownership, passing away or becoming disabled. Other considerations such as divorce and other unique financial situations are often included in the document. There are two facets of the plan that need to be considered separately: transfer of assets and transfer of power. The transfer of power is when the control of business operation is transferred to those best suited for it. The transfer of assets often goes to designated family members or a larger group than the person or persons assuming control.
What kinds of plans are there?
There are several types of buy sell plans that companies can utilize, including:
Stock Redemption - Cross Purchase - Wait & See - Keep/Sell
These plans are potentially quite complicated and are best suited for discussion on a case-by-case basis.
Who will benefit from succession planning?
Business owners and their families who have not planned for business succession should seriously consider planning for it, as the downside can be catastrophic to the business, its partners, and their families.
