Once we have reached a fair amount of success, it is natural to draft a will to protect our possessions from the probate process in the case of an untimely accident. However if you are a small business owner your business is one of your most valuable assets, yet many business owners fail to enact a business succession plan. But as one of your most valuable assets, planning for the future of your business is imperative to its long term success. In the case of a divorce, untimely passing or your retirement your business will transfer to its beneficiary, or be sold outright.
There are several options for business succession, these include:
In this case a family limited partnership (FLP) can be put in place. Initially both general and limited partners are designated and the business is transferred to the partnership. This allows you to stay active in the day-to day operations of your business and 100% in charge of management and liability. Limited partners do not have a say in management decisions. Over time the entire business is gifted to the heirs and beneficiaries, minimizing tax liabilities. Assets that can be transferred include real estate, company stock as well as cash
In a buy-sell agreement or "buyout" the partners will eventually buy the other partner's share of the company. You must dictate ahead of time what event will trigger buyout (death, retirement etc.) and at what value the leaving partner's share is worth
In the case there are no suitable candidates for ownership of the business it may be in your best interest to sell the business altogether. Although this seems to be the easiest solution, it does involve a valuation of the business, contracts, employment issues etc.
An attorney familiar with business law can also arrange that interests in the company are put in to a trust, tax free and given to a charity of your choosing
Many of these business succession options are sophisticated, and it is recommended to hire an attorney specialized in business transactions to reduce liabilities and tax obligations. If done incorrectly, a business succession plan could leave beneficiaries with an impossible tax burden or even the loss of the business altogether. Only 30% of business will continue past the first generation, so plan for your businesses long-term success as early as possible. In addition to the peace of mind business succession will offer you in your life, your businesses succession plan can also help reduce your beneficiaries federal estate tax burden after you pass.