Building up a business takes years of sweat, work, and sacrifice. To take advantage of its assets, you need to establish a succession plan with help from a knowledgeable estate planning attorney. A succession plan helps you pass the business on to the next generation if it is a family business. You can also enter into a sales agreement with employees or partners or even make plans to sell to a third party.
You can do several things to pass your business along to your chosen successors, such as ensuring you are up-to-date on your organization’s paperwork and structuring a buy-sale agreement. For more information, talk to a Metairie business succession planning lawyer.
What Is the Business Structure?
Before an owner can make plans to pass down an interest in their business, they must understand their current ownership interest. There are a few main types of businesses:
- Sole proprietorship
- Limited liability corporation (LLC)
- S Corp
- Partnership
Each format can affect an owner’s interest in the company, which impacts the succession plan. Unless a person is the sole business owner, the structure could impact what percentage of the business they can pass down. The ownership structure can make conveying the business easier or more challenging.
In a community property state, community property rules can impact the ownership of the business unless a couple has a marital property agreement in place or the business has the correct structure. A business succession planning attorney in Metairie could ensure a company is passed to the owner’s choice of successor.
Choose the Successor for the Business
The first thing any business owner should outline in a succession plan is who will get the business. People with family businesses usually plan to keep the business in the family. However, it can become challenging to determine who should inherit because equality is not always equitable. Many parents want to split family businesses among their children equally, but if some of the children work in the family business while others do not, those equal shares may lead to an unfair distribution.
Even if the business is not a family business, parents often want to leave businesses to their children. Before doing that, the parents must determine whether the children have any interest in taking over the business. If not, it might be more reasonable to pass down management and control of the business to key employees. Company owners can work with a business succession lawyer in Metairie to set up a continued plan for family members’ earnings.
Buy-Sell Agreements
A business owner should establish a buy-sell agreement to ensure a smooth transition for the business. These agreements can allow co-partners, family members, or even third parties to purchase the business. They can set up the terms for valuing the business and the conditions for selling.
People often think of buy-sell agreements as a way to keep undesirable owners from having an interest in the business when there are multiple owners. However, they can be a great way to ensure a smooth transition under many circumstances, including death, retirement, or disability.
Valuation
Determining a business’s value can be complex. Rather than waiting until it is time for a transition, businesses should get regular valuations. Doing so helps owners understand the company’s value and make appropriate transition plans. Additionally, it helps people ensure they have done the correct tax planning.
Estate Planning
While a succession plan does not technically require an estate plan, estate planning can help simplify that plan. Instead of waiting until death to transfer the business, an owner may want to use lifetime gifting and irrevocable trusts to help manage their estate taxes.
Additionally, the state has forced heirship laws, which could give heirs a right to inherit parts of an estate, which can impact a succession plan.
Meet with a Metairie Business Succession Planning Attorney
A good business succession plan involves having the appropriate ownership structure, identifying successors, crafting buy-sell agreements, valuing the business, and dealing with taxation issues. The owner’s estate planning goals may include reducing or eliminating estate taxes, community property considerations, wills and trusts, and insurance issues. A Metairie business succession planning lawyer can help people plan to transition their business to someone else’s control or ownership. Contact us today to schedule a private consultation.
