Succession planning involves making financial and logistical decisions about what will happen to one’s business upon retirement or death. To begin planning, the business owner must first decide who would be the best individual to take over the business. The next decision will involve determining the proper selling arrangement. There are a few ways to transfer succession, but here are three commonly used methods often used by business owners in their succession planning efforts.
Selling the Business to a Co-Owner
If a business was founded alongside partners, the business owner might consider these co-owners as potential successors. This agreement is often best implemented in a drafting agreement which designates that, in the event of the owner’s death or that they come to lack capacity to run the business, the remaining owners will agree to purchase the business interests. An agreement like this may even be found in the initial partnership or founding agreements of the company. This agreement is also helpful in facilitating a smooth transition: partners are likely to be familiar with the company’s operations and will be equipped to take over.
Passing the Business to Heirs
Another common method of business succession is to pass the business on to the heirs of an owner, especially where the heirs may have been involved in and/or working the business. This option is seen as favorable because it allows loved ones of the business owner to benefit from the business that that owner started. Some individuals also value the idea of keeping a business “in the family,” and this option appeals directly to that interest.
However, there is a potential drawback to this form of succession: making business decisions within the family can become complicated and often causes family disputes. Therefore, it is crucial to keep in mind that family and business matters can be kept separate if adopting this method. However, a mingling of the two can cause issues within both relationships and business practices.
Selling the Business to Third Party
When no other partners or owners are involved in the business, and one desires to keep business matters away from the family, selling the business to an outside party has become a reasonable option. One must consider if another entrepreneur, business owner, or even competitor would be willing to purchase the business and take over. Before initiating a sale to an outside party, one critical first step is to calculate the business value to ensure that the business is sold for a reasonable amount.
How do I decide which method of ownership transfer is best for me and my business?
Various factors need to be considered in your business succession planning efforts and your decision of how you would like to transfer ownership in the event of your sudden inability to continue serving as a business owner. Attorneys specializing in business succession planning are prepared to walk you through these considerations and help you craft a succession plan and decide how to transfer ownership of the business you worked hard to manage. For assistance in your business succession planning matters, contact Laizure Metz Legal Services at Christopher@laizuremetzlegal.com or (347) 625-7854.