Many business owners spend so much time working, building, and managing their business that they spend little time thinking about what the ultimate disposition of the business will be when they want to retire or are no longer around to continue to work in the business as a result of disability or death. Business succession planning is planning for where the business goes after its owners pass away, become disabled, or no longer want to operate the business. This is often a key issue facing business owners but many times does not arise until something happens or retirement is right around the corner. Unfortunately, by this time it is frequently already too late to properly implement a succession plan particularly if the owner has died or become disabled. This is especially true where the business owner was the only owner/operator of the business. Many times the disabled owner or owner’s estate is left with few options and diminished business value when the owner operator is no longer able to actively operate the business venture. Failure to plan for business succession can leave the owner’s heirs in a negative position particularly if the value of the business was an integral portion of the owner’s net worth.
There are a number of different options for how to effectuate a business succession plan. Decisions on whether the business is to go to children or other family members, executives or other employees, or to outsiders is a difficult choice. In many cases, especially for the solo business owner operator, the choices become more limited often with sale of the business while the owner is still alive and working or arranging a sale to a competitor upon death or disability as the only viable options.
Dworken & Bernstein has experienced business and estate planning attorneys who can guide business owners through the various options and lay out a plan for a successful business transition given the owner’s situation, goals, and existing retirement and estate plans. Such succession plans frequently include buy-sell agreements amongst the owners, ownership transfer restrictions, buy-outs, voting control arrangements, spin-offs, discounted valuations, limited partnerships, employee stock ownership plans (“ESOPs”), or straight sales. It is also possible for a business owner to simply gift their business ownership to their children or others. Regardless, it is essential that tax planning and consequences of a succession plan are considered as well as the owner’s retirement planning position. It is essential that a business owner creates a business succession plan and integrates that plan into their estate planning to ensure a smooth transition of all assets in order to minimize taxes and ensure a smooth transfer of ownership, funding of the owner’s retirement, or providing for the owner’s heirs.
