If you have a family business that you wish to leave to heirs after you retire or die, then it is imperative that you tackle the task of business succession planning — especially if you have a blended family or if there will be multiple generations involved.
Some of the key planning issues you will need to address include:
- A transition plan to smooth the onboarding of the next generation
- Aligning all family member interests
- Meeting the goal of financial balance between those family members who will be involved in the business and those who won’t
- Anticipating and planning for any potential family disagreements
- Inheritance and other estate planning issues
- Having the right systems in place within the company to ensure the business will keep going after you are gone
A critical component of family business succession planning is the creation of a buy-sell agreement. This important document will help you plan for the expected as well as the unexpected — if you or your partner falls seriously ill or dies unexpectedly, or if there is a divorce that impacts the business. In these instances, a buy-sell agreement will enable the remaining ownership to purchase another owner’s shares of the company or ensure that your shares pass to your heirs.
If you do not plan ahead, there are any number of unfortunate things that can happen to your business and your family. For example, the IRS could value your closely held company at more than it could be sold for, leaving your family with a hefty tax bill. Your business may not have the cash flow to enable your other partners to buy your ownership shares from your heirs.
A buy-sell agreement allows you to avoid these situations by planning ahead, and offers the necessary flexibility for payments to be made over time, or for a life insurance policy to cover payments so the company’s liquidity is not adversely affected.
Research has shown that only about one-third of family businesses last beyond a second generation of leadership. Working with an experienced business attorney will ensure that your business can succeed even after you have left.
Johnson Legal PC has extensive experience in providing legal guidance during the start-up phase of small organizations, as well as during the more mature periods of organizational growth that larger business and corporations face. Contact us to learn more about how a great corporate attorney can help your business thrive.