Business owners often work their entire lives building and operating a business, sacrificing a lot of time and hard work to create something they are passionate about. Very rarely, though, do they put as much effort into making sure that a plan is in place to pass along the business when the time is right. Whether the business will be left to the kids, transferred to business partners or key employees, or sold to an outside party, it is important that business owners put a business succession plan into place and give thought to the tax, legal, and emotional/psychological issues that come into play when turning over control and ownership of what is frequently the business owner’s most valuable asset.
Decisions regarding how to deal with the family business are often complicated when one or more children work in the business while others do not. Parents question how to keep things equal among the kids when it makes sense to leave the business to the child who has spent a significant amount of time working to increase the value of the business. Developing a strategy to deal with how the business is to be passed to the next generation is a critical element of a business owner’s estate plan.
When in business with one or more partners, it’s important to document what happens when one partner wants to retire, becomes disabled, or passes away. Through carefully crafted buy-sell agreements, operating agreements for LLCs, partnership agreements, and shareholder agreements, business owners can avoid future disputes and litigation that can destroy relationships that have been developed over years of working together. Again, the key is to make sure that these issues are addressed in a well-structured business succession plan.
For some business owners, the best exit strategy is to sell the business to an outside party, instead of passing it along to the kids or transferring it to employees who may not be ready to run the business. Although this decision is frequently hard to make for the business owner, once made, it is in the owner’s best interest to maximize the value of the business and minimize tax risks before selling. Proper legal structures and scrutiny of the business operations and financial processes can increase the sales price of a business, but that process is most effective when started well in advance of the anticipated sale. Strategies can also be implemented prior to the sale of the business to minimize the amount of taxes that would be paid by the selling business owner after the transaction.
Regardless of the business owner’s long-term plans for the business, having a customized succession plan in place is a vital step to ensure that the owner’s wishes are met. The attorneys at Dana Whiting Law are able to work with business owners in all industries to document a carefully structured plan to maximize value for the owner and minimize the tax impact of a future transaction.