Business succession planning
Business succession planning refers to planning for changing ownership of a business interest. Effective business succession planning can be accomplished only after taking into consideration the unique circumstances of the business and its owners, and often involves a team approach consisting of the owners, their family, their accountant and lawyer in order to design the proper plan. There is no one document used for business succession planning. Rather, it requires the coordination of several governing documents, including:
• each owner’s will and, if they exist, revocable and irrevocable trusts;
• entity documents such as articles of incorporation, articles of organization, by-laws, operating agreement, or partnership agreement;
• buy-sell agreements.
Business succession planning ensures a smooth transfer of a business, through which you control the transfer of your business—rather than state law controlling the transfer in the absence of any documents that would indicate your intent. It is crucial to plan ahead and consider a number of possible scenarios, including receipt of a third party offer, disability, retirement, insolvency, death or divorce. While a will or revocable trust can be used for transfers at death, there are a number of other important tools that should be considered. Chief among these are buy-sell agreements, installment notes and private annuities.
The first step to any succession planning process is to identify your goals as the owner. There are a number of questions that need to be addressed in order to do proper planning.
• Do you want the business to remain in the family or to pass to key employees?
• Do you want to sell the business and then invest the net proceeds?
• What are your cash flow needs and income tax objectives?
• Are estate taxes a concern?
Thomas L. Bird and Associates can help you with business succession planning by:
• Reviewing and evaluating your current business entities, ownership, capitalization, cash flow, and succession plan;
• Establishing priorities and setting goals by asking such questions as:
o Will the business will be retained by the family?
o If so, which family members should control it?
o How will the next generation acquire the business?
• Discussing and designing a succession plan by:
o Consulting with you and your family and your local advisors;
o Calculating the impact of the succession plan on your business cash flow;
o Considering a host of issues, such as buy-sell agreements; life insurance to fund the succession plan; economic security through installment sales, private annuities, and leases; deferred compensation agreements; retirement plans; gifting and equitable treatment of your children; minimizing income taxes on the business and the estate tax on the transfer to the next generation.
