BUSINESS SUCCESSION ATTORNEYS IN DAYTON, OHIO
You’re operating a successful business and so deeply involved in its daily operations that you keep putting aside the question of what happens to the business when it comes time for retirement, or if the unexpected happens, you become incapacitated, or worse, pass away suddenly.
If it’s a sole proprietorship, you can always bequeath the business to your heirs, but if you’re a partner or co-owner, other questions loom, such as how much is your share of the business worth? Do you want to transfer your share to someone else when you retire or sell it?
In either situation, sole ownership or partnership, who steps in to assume your responsibilities? Have you designated someone and trained them for the task?
In other words, succession planning is a crucial part of running a business, as it is to create a plan to establish and run the business successfully.
If your business is in Dayton, Miamisburg, or Centerville, Ohio, or in the counties of Montgomery, Warren, Greene or Butler, contact StachlerHarmon Attorneys at Law. We will sit with you, get an overview of your business and your needs and desires going forward, and help you create an estate plan that includes provisions for smooth business succession.
WHY HAVING A SUCCESSION PLAN IS IMPORTANT
There are many reasons for having a solid business succession plan in place.
One is to prevent disruptions or even chaos in the event of the unexpected. Another is to ensure that your business, or your portion of it, doesn’t end up in the wrong hands, or even end up being liquidated in a fire sale. Taxes are another consideration. Finally, it is essential to have trained individuals – family members or trusted employees – who can assume your role once you’re off sipping drinks on the beach in retirement.
Overall, a good succession plan should focus on:
Transferring ownership when the time comes
Maintaining your lifestyle in retirement
Providing for your heirs financially
Preparing the business for the unexpected or unforeseen
TYPES OF SUCCESSION PLANS
Regardless of the structure of your business, SCORE – the nationwide network of volunteer business mentors – sees four options when the time comes, whatever the reason, to transfer ownership:
Transfer the business to your heirs
Sell the business to your partner(s)
Sell the business to a key employee
Sell the business to an outside buyer
A sole proprietorship is the most straightforward type of business for succession planning. You can always train a family member to take over the reins when you retire, and you can leave the business to your heirs through a will or living trust, preferably the latter since it avoids probate proceedings.
All this, of course, assumes that one of your family members wants to run your business. If not, then you will have to train an employee to take over, and even then, you may have to award the employee ownership interest or the right of first refusal should you decide to sell at some point, or should your heirs so decide after you’re gone.
If you’re involved in a partnership, matters can get a bit trickier. The partners should agree on how to handle retirement and other succession issues before establishing the business. A partnership agreement is the perfect vehicle for doing this.
If a partner decides to leave the business, the question of the valuation of his or her interest comes into play. If, for instance, there are five partners all with equal 20 percent interests, and each put up $20,000 to fund the business but the business has grown since then, how much is the retiree owed? A mechanism for determining this - called a buy-sell agreement - should be part of your business planning.
The buy-sell agreement must also include provisions that detail what happens should one partner pass away. The usual tool for this is life insurance.
One version of an insurance-based buy-sell is called a cross-purchase agreement, in which each partner buys a life insurance policy on the other partners. When one partner dies, the others use the proceeds from the policies to buy the deceased partner’s share at a pre-agreed-upon price.
An entity-purchase agreement involves the company itself buying a policy on each partner. When one partner dies, the company will receive the benefits and use them to buy out the decedent's share of the business.
The partnership agreement or operating agreement should also address the issue of transferring or selling a partner’s ownership interest in the business. Should there be a right of first refusal so the other partners can buy those interests before it is sold or transferred to someone else?
If the business is a Limited Liability Company (LLC), the operating agreement among the members should likewise address:
Designating who controls the company, which member or group of members
Naming the successor or successors to the controlling person or team
Setting the terms and conditions for the sale and transfer of ownership interests
BUSINESS SUCCESSION ATTORNEYS SERVING DAYTON, OHIO
If you’re involved in a business as an owner, co-owner, or partner, don’t leave the future to chance. StachlerHarmon Attorneys at Law will help you create a comprehensive estate plan that includes your business assets and the issue of succession so that both you and your loved ones can enjoy peace of mind when contemplating the future. Contact us today if you’re in Dayton, Centerville or Miamisburg, Ohio, or in the surrounding counties of Montgomery, Warren, Greene or Butler, and let's get started.