Business Succession Planning
You have built your business into a success. Now is the time to prepare for its future.
You have worked hard to make your business a success. You do not want it to be for nothing, even when the time comes that you can no longer run your business. It is for this reason that all business owners need a business succession plan. These plans are similar to personal estate plans that includes wills, trusts, and other elements. Just like an estate plan, through a business succession plan, a Pearland estate planning attorney can ensure your business is always taken care of and that your hard work does not go to waste.
The Importance of a Business Succession Plan
If you pass away, or even just retire, and do not have a succession plan in place, your stake in the company may be passed on to relatives, absorbed by shareholders, or a combination of the two.
If the business is family-owned, disputes may arise between your relatives if there is no succession plan in place. If some relatives are more active in the daily operations of the business, they may feel as though they are entitled to a larger share than others who are not as involved.
In larger corporations, employees and clients may leave the company if there is no succession plan because they fear instability. Shareholders may also not be able to buy out the extra shares and if there are temporary replacements, they may not be able to lead the company at such a delicate time. In other instances, if a spouse or other relative inherits the shares of the business, disputes between the shareholders may occur, which can stall progress and even lead to the loss of assets.
How to Draft a Business Succession Plan
Anyone wishing to draft a business succession plan should speak to an estate planning attorney who can help ensure a smooth transition. These plans are typically created after speaking to employees, coworkers, family members, and other shareholders. These individuals can share their goals for the future of the company, so the business succession plan can be tailored to those goals.
Business succession plans should always be customized for the specific business. However, there are typically two approaches to creating a plan. These are either retention planning or buy-sell retention planning.
Retention planning will keep the business within the family. In these situations, a relative such as a spouse or child will take control of the assets and shares of the business.
In a buy-sell retention plan, essential employees or shareholders are given a larger stake in the company. These individuals are given the right of first refusal or rather, they are offered the shares or interests in the business before they are offered to outside individuals. During succession planning negotiations, the business will be evaluated to properly price the shares of the business.
When business succession plans are properly drafted, they provide members still within the company a procedure to follow when the unexpected happens. Successors are often named within the plan and this successor will guide the company through the transition period.
Need a Business Succession Plan? Call Our Texas Estate Planning Attorney
You have worked hard to build your business into the success it is today. You do not want the unexpected to hamper its future success. At John Powell III, P.C., our Pearland estate planning attorney can help you plan for the future of your business. Call us today at (832) 850-6095 or contact us online to schedule a meeting with our attorney and get the peace of mind you need with a business succession plan.