Business Succession Planning

What is business succession planning?

Succession planning is the preparation of a detailed set of documents that will ensure an orderly transfer of responsibility for the business when the owner/founder either retires or dies.

A qualified attorney can prepare these legal documents under your direction to ensure they comply with state laws and are specific enough to avoid tax penalties. The succession plan should include: buy-sell agreement between owners, buy-sell agreement among shareholders of a corporation, shareholder agreements and agreements among partners.

The purpose of succession planning is to ensure the orderly transfer of controlling interest in the business and continuity of management without interruption or loss of control. The documents should also be structured to protect minority shareholders and to comply with estate and income tax laws.

What can make a business owner decide to start succession planning?

There are key reasons why you should have a succession plan:

• Liquidity – to ensure that their business will continue as they wish after the founder retires. The founder has been successful and wants to retire, or is no longer willing/able to work as hard.

• To avoid a forced sale – if the founder is unable to work, the business may have to be sold at an inopportune time or place. The situation can be made worse by family conflict over the future of the company.

• Tax benefits – succession planning can result in significant estate and gift tax savings.

• Estate planning – the owner’s estate plan may not be complete unless an effective succession plan is also in place.

What are some of the reasons for owners of closely held businesses not to put together a business succession planning document?

I’m too young/old to think about it… I’ll do it when I’m ready… I have plenty of time… I just don’t know where to start…

The most common reason cited by business owners for not having a plan is that they are “too young” or “not ready.” Hopefully, you will never be ready. There will never be a perfect time, and if you wait until you are “ready,” it probably will never happen. The time to start is now, and you can begin with a general plan and work towards the details as you budget for them and fund them one at a time.

What are some of the things I need to consider when putting together a business succession planning document?

• When should it take effect?

• How should buy-sell agreements be structured?

• How will the company continue to operate without interruption under a new owner or management team?

• What kind of control and exit provisions should the owner have?

• To what extent can successions take place before and after key events such as tax years, fiscal years and asset transfers so as not to trigger tax consequences?

• Who are key employees, potential successors or members of the team that can take over responsibility for overseeing the company’s day-to-day activities?

• If the owner is no longer active in the business but still has a substantial equity interest, what needs to be done to ensure that his or her wishes are carried out?

• Will buy-sell agreements take effect automatically if the shareholder dies or becomes disabled?

The best way to answer these questions is to contact an attorney who is knowledgeable in this area of law and can draft the documents that will provide for a smooth transition. An attorney can also help you consider such issues as: what type of entity your business is and the legal ramifications of each type; tax consequences to you and your business; ways to reduce taxes, such as incentive stock options and qualified retirement plans; and the types of additional benefits that can be added.

Business Success Planning Checklist:


1. Define your business goals and objectives – What do you want to achieve with your business? What are your long-term and short-term goals?

2. Research your industry – Understand the trends, threats, and opportunities in your industry. This will help you make informed decisions about your business.

3. Develop a marketing plan – How will you reach your target market? What marketing channels will you use? How much will you spend on marketing?

4. Create a sales strategy – What sales methods will you use to sell your products or services? How will you price your products or services?

5. Create a business plan – This document outlines all aspects of your business, including your financial projections, marketing strategy, and operations plan.

6. Secure funding – If you need funding to start or grow your business, research different financing options and develop a funding strategy.

7. Hire a team of experts – Assemble a team of professionals who can help you with everything from accounting to website development.

8. Launch your business – Once everything is in place, it’s time to launch your business! Make sure you promote your business and get the word out.

9. Monitor your progress – Regularly track your progress against your goals and objectives. Make adjustments to your plans as needed.

10. Celebrate your success! – Achieving your goals is cause for celebration! Take the time to enjoy your hard-earned success.

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