How To Pass Your Business Along Your Family
If you own a business, it is easy to neglect planning for the future of the business when day-to-day operations consume all your attention. When you plan to pass your business along to your family, business succession planning is crucial to ensuring that the company transitions smoothly to the next generation. A thoughtful, thorough business succession plan provides peace of mind for you and your family members by establishing a roadmap for the future of the business when you are no longer involved in running it.
What Is the Role of Business Succession Planning?
When you own a business, creating an estate plan includes establishing a business succession plan to achieve your long-term goals for the future of the business. In the case of a business that will be passed along to family members, those goals include providing a smooth transition to the next generation.
The nature of your business goals for the future depends significantly on your personal and business circumstances. To develop a meaningful succession plan, you need to focus on the future role of the business for yourself and your family. An attorney with business succession planning experience can provide professional guidance in the planning process to identify the key concerns and issues that the plan should address.
Tools and strategies are available to structure the business and your estate plan to accomplish your important planning goals. Minimizing taxation and avoiding probate of business assets are always crucial estate planning concerns. Structuring the transfer of business ownership to family members or others is also a priority in a business succession plan.
Succession Considerations For a Business Owner
A key consideration in succession planning is determining whether you anticipate that the business ultimately will stay in the family or instead be sold to owners outside the family. Overall, succession planning involves outlining how ownership and management of the company will change during the eventual transition, in addition to addressing continuity of the business in the face of unexpected events.
Identifying Successors
If the business will stay in the family, defining management roles and responsibilities, timelines, and contingency plans are important aspects to address. Identifying potential successors to run business operations is essential. In some situations, the successor(s) may need additional hands-on training, mentorship, or leadership development to assume a management role, all of which can be addressed in the succession plan.
Options For Transferring a Business
Generally, a business owner may transfer an ownership interest in a business in one of three ways.
First, all or part of the business can be sold through a buy-sell agreement, which is a legal document outlining how an ownership transfer will be accomplished. A buy-sell contract typically addresses the purchase price, payment terms, and contingencies that activate implementation of the contract, as well as valuation methods for appraisal of the value of the business.
A second option for transfer is gifting ownership to the family member successor(s), either all at once or incrementally. For this type of transfer, a professional valuation is essential, as is analysis by a tax advisor or attorney to fully evaluate the tax implications and identify the best way to proceed from the standpoint of taxation.
Finally, the business owner may consider transferring ownership of the business into a trust created with guidance from an experienced estate planning attorney. A trust can provide specific benefits for both the owner and beneficiaries of the trust, but selecting the appropriate type of trust is extremely important.
The most suitable option for transfer of a specific business depends on a wide range of considerations. The planning process helps identify the best strategies and options to accomplish a business owner’s goals.
Developing a Business Succession Plan
Establishing a business succession plan is a process that requires careful attention to a wide range of factors relating to the structure and operations of your business, in addition to taking your family circumstances into account. While it may seem like a daunting task, getting professional guidance from an experienced business succession planning attorney makes the process go smoothly and ensures that you factor in all the important considerations.
After a business succession plan is in place, it is important to remain attentive to development and readiness of potential successors. A change in circumstances or unanticipated challenges may necessitate adjustments in the plan. Keeping your business succession plan current is as important as making certain that the rest of your estate plan is up to date.
Succession planning involves legal and financial aspects that should be addressed by professionals. It is not a process that a business owner should undertake without appropriate advice and counsel.
Schedule a Free Consultation to Talk with an Experienced East Valley Business Succession Planning Attorney
Attorney Shane Peterson draws on his extensive estate planning and business law experience to guide you through the process of developing a business succession plan to pass your business along to your family. Shane understands how critically important business succession planning is for a family and knows it can seem overwhelming for a business owner to contemplate the future of a family business. Shane’s individualized, client-focused approach puts you at ease and gives you full confidence that your goals for your family and business are protected for the future.
At Peterson Law Offices, your first consultation is always free of charge. We welcome inquiries from clients throughout the East Valley, including Queen Creek, San Tan Valley, Gilbert, Mesa, and Chandler. Schedule your free initial consultation by calling 480-878-5998 or using our online contact form.
