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What Are My Options for Creating a Business Succession Plan?

Posted on in Estate Planning

San Francisco County Estate Planning AttorneyWhile estate planning is important for everyone, it can be especially beneficial for business owners. A person who owns and operates a family business or who co-owns a business with one or more partners will likely be concerned about how to keep the business running, no matter what happens in the future. As a business owner nears retirement age, they may be considering an exit strategy that will allow them to leave the business in capable hands. However, a business succession plan can be important for owners of any age, since it will ensure that others are prepared to take over and continue operating the business if a person dies unexpectedly, encounters health issues, or is otherwise unable to manage business operations. 

Issues to Consider When Creating a Succession Plan

The primary concern that a business owner will need to consider is who will take over the business after they leave. Potential successors may include:

  • Family members or other heirs - When one or more members of a person’s family are involved in a family business, it may make sense to pass ownership of the business to these loved ones. This will keep a business in the family and ensure that the owner’s children or other members of their family can continue to reap benefits from the business. An owner may use their will to specify that business assets will be inherited by certain family members, or they may make plans to pass ownership of the business to a loved one following their retirement. However, an owner will want to consider a person’s level of involvement in the business and their ability to manage business operations, and this can help them ensure that the business will continue to be successful. If necessary, a succession plan may include a buy-sell agreement that will allow heirs who are not involved in the business to sell their share of the business to those who will be more closely involved in running the business.

  • Co-owners - A person who owns a business along with one or more partners may make arrangements to sell their share of the business to the co-owners when they retire or leave the business. In many cases, partners will use life insurance policies that provide coverage in the case of a partner’s death. In some cases, a cross-purchase agreement may allow surviving partners to purchase the share of a partner who dies before leaving the company. For businesses with a large number of partners or shareholders, an entity-purchase agreement may allow the business itself to purchase the shares of a deceased partner and distribute them among the other partners.

  • An employee - A business owner may wish to pass ownership of the business to a key employee who has been involved in managing the company. In these cases, they may wish to train the employee on the operation of the business and create a buy-sell agreement that will allow the employee to purchase the owner’s business assets.

  • An outside party - If a business owner does not have a clear successor in mind, they may make arrangements to sell the business to another person or company. In these cases, a business valuation will usually need to be performed, and proper preparations should be made to ensure that the business will be able to continue operating successfully after ownership has been transferred.

Contact Our San Francisco Business Succession Plan Lawyer

If you need to address ownership of your business when creating your estate plan or preparing for retirement, the Law Office of Martin Alperen can advise you of your options and help you execute your plans correctly. Contact our Berkeley estate planning attorney today at 415-534-1200 to set up a free consultation.

Sources:

https://fitsmallbusiness.com/business-succession-planning/

https://www.investopedia.com/articles/pf/07/succession_planning.asp

https://www.calcpa.org/public-resources/ask-a-cpa/business-management/succession-planning/every-family-business-needs-a-succession-plan

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