Do You Have a Plan For Who Will Take Over Your Business When You Die?
As a small business owner, you take pride in being an expert at what you do each day. Running your business often requires wearing several hats on a daily basis. You are responsible for many important matters concerning the running of your business as well as the well-being of your employees and their families.
But what you may not have considered is one of the most important responsibilities of all. Who will run that business if you die or become incapacitated?
As a small business owner, creating a business succession plan should be an essential part of planning for your business. Although you may expect to run your businesses until you retire, life often has other plans for us. It is critical that we plan for them.
What Happens to Your Business When You Die?
What happens to your business when you die depends on how the business ownership is held.
If it is a sole proprietorship, the business will dissolve with your death and become part of your estate. But if the business is another type of business entity, such as a limited liability company, partnership, or corporation, the business still exists and goes on without you. Unfortunately, when ownership rights transfer without a succession plan in place, it can result in numerous issues.
Preparing for the future is something every small business person should be concerned with. Having a business succession plan in place can help do this. Succession planning can help ensure that the investment and hard work you have put into your business continues on in the way you choose. It can also work hand in hand with other estate planning goals to minimize gift taxes, estate taxes, and tax burdens on the business itself.
How Are Businesses Transferred?
There are many ways that a business can be transferred. While some family businesses will be passed on to family members, others will look to sell to others. Depending on how it is held, a business will transfer ownership by
- Passing to family members
- Selling shares to another co-owner
- Redistribution of ownership between surviving owners
- Passing ownership to particular employees
- Selling the business to another entity
As a small business owner, you should consider your options, your particular circumstances, and future vision for it to develop a succession plan that best works for you and the business you have built.
Business Succession Plans Can Be Highly Customized
Having a business succession strategy in place can offer great peace of mind and will ensure the smooth transition of your business in case of your death or incapacity. Succession plans can be highly customized and specifically set out your goals for the future of the company, setting expectations for anyone who will succeed you as the owner.
One of the most important things to have in place as a business owner is a buy-sell agreement, or BSA. This will help govern how your business ownership will transfer upon your death or incapacitation. Having a BSA in place will allow you to anticipate and control how succession will take place when you can no longer run your business. Your will can also comply with any of the provisions of the BSA to ensure that your business interests are transferred in coordination with your other estate planning objectives.
While many experts suggest that a business owner have a succession plan in place three to five years prior to retirement, this doesn’t address an emergency such as incapacitation or divorce. Having a plan for distribution of your ownership can save your co-owners, partners, and loved ones a great deal of stress and headache during what will already be a challenging time.
Getting Legal Business Succession Assistance in CA
While nobody wants to think about planning for death or incapacity, developing a business succession strategy is just part of good business and estate planning tactics. If you are a small business owner, it is important to plan for succession at your retirement at best and any unforeseen circumstances at worst.
At the Law Offices of Roshni T. Desai, our skilled team of Santa Ana estate planning attorneys is committed to helping each client with essential estate planning and business succession needs no matter what their situation. Call us at (714) 694-1200 or contact us online to schedule a free consultation to discuss your concerns or needs.