Starting and running a business has many considerations that owners need to take into account. Most people are familiar with decisions that owners have to make concerning business entities, articles of incorporation, corporate bylaws, and trademarks. However, one issue that many business owners do not always consider is a having a plan that dictates what happens to the business in case of their retirement or death. In this article, we will discuss the importance of having a business succession plan in place.
What Is A Business Succession Plan?
A business succession plan is a plan that is in place that determines what happened to the business when the original owner or founder retires or dies. Essentially, it will include a contingency plan on how the company should continue. Having this plan in place allows the company to reach long-term goals and visions.
Can Business Succession Plans Be Part Of The Corporate Structure?
Depending on the corporate structure of the business, the founders might build a business succession plan into it. For example, if the business structure is a partnership, then the assumption would be that the remaining partner will take over the business. In a C-Corp or S-Corp, the Corporate By-laws will likely address a succession plan.
What Happens If The Corporate Structure Or Bylaws Are Silent?
If the corporate structure or bylaws do not outline a business succession plan, then a business owner might want to seek a buy-sell agreement. A buy-sell agreement is an agreement with another person where you agree to sell your business, and the other party consents to buy it in the case of on specific events. For the deal to be valid, it will need to take the form of an enforceable contract.
How To Decide A Proper Business Succession Plan
Only the owner(s) of the business can decide the plan. With that said, however, there are a few questions worth considering when drawing a succession plan:
- Do you wish to keep the business in the family? Is there someone in the family competent enough to run the business?
- Is there a long-time or trusted employee who can run the business?
- Are there any dependents who will be financially impacted if someone else runs the business?
- Is the business part of the inheritance for your children or grandchildren?
- Do any former spouses have any claims or rights to the business?
Whether you plan to start a new business or have an existing business, having a business succession plan is instrumental to long-term success and vision. If you wish to leave your business as part of an inheritance or enter into a buy-sell agreement, you mustn’t leave anything up to chance. The attorneys at Dowd Law have years of experience working with clients to ensure their interests are protected. Contact Dowd Law for a consultation so we can ensure that your business succession plan will be followed per your wishes.