There are many things you can plan for in life, including what happens to your estate when you pass away. However, as a business owner, you should also prepare a succession plan as a means to protect your business when you are no longer able.
Oftentimes, the continuation of a business relies heavily on its owner(s), and if he/she or a partner passes away, it can cause a gap in the productivity, profitability, and the growth of the business and its employees.
Creating a succession plan for when a business owner dies helps to clearly outline how to smoothly fill in those gaps, whether that is leaving their share to an heir or outlining the steps to sell the company.
When you design a succession plan for your business, you should begin by determining how the business will continue running from the time of the owner’s passing through the ownership transfer or selling of the business.
The idea here is to avoid leaving any room for power struggles or strife among heirs, business partners, or employees.
Determine who is most equipped to diplomatically take charge and whose goals and aspirations align with the business--perhaps a co-owner or a manager who is familiar with the ownership role and duties.
If you prepare an estate plan, will, or trust, then you have likely included your business interests in them as well. However, the structure of your business could affect how your business gets divided up within your estate.
For example, a sole proprietorship dissolves upon the owner’s death and any assets (cash, inventory, etc.) becomes a part of their estate. However, if the business is a partnership, the succession is then dependent on that agreement or whichever partner owns the majority of interest.
Taxes and death are two of life’s guarantees, and estate taxes should be considered when developing your business’s succession plan. Any tax rate can change and is typically based on the worth of your estate. Here are the federal estate tax rates for 2021.
This is especially important for family-owned businesses where the majority of their net worth is in the company.
You have poured your heart and soul into your business. That is why creating a succession plan for when you are no longer able to run it is important. There are several planning tools you can take advantage of, such as a will, operating agreement, employee handbook, etc.
However, it may not be acute and dry process and often requires the help of a professional who can ensure that all of your t’s are crossed and i’s are dotted. Contact the Law Office of Audra Simovitch today to help ensure your business succession plan is in order.