A Business Succession Planning Lawyer Ensures that Your Business is Incorporated Into Your Estate Plan
The decision to start a business is often one of the most important and financially impactful choices that a person makes. Starting and running your own business takes a great deal of time, effort, and resources. To ensure that the value you have built into your business is included in the plans for the future, it is essential to incorporate business succession planning into your estate plan.
The careful and deliberate planning of tax and non-tax considerations concerning your business is essential for when you wish to transfer the value of your business to future generations. Your Long Island business succession planning lawyer from Davidow, Davidow, Siegel & Stern LLP is available to provide expert legal guidance to support your business succession planning goals.
Create an Agreement Among Owners to Support Your Business Succession Goals
Whatever type of business entity your business is, whether a corporation, partnership, limited liability partnership, limited liability company, or otherwise, an agreement should be considered among the owners of the business to determine key aspects of its future.
The agreement that you and the other owners of your business should construct to protect the future of your business and the owners’ interests should include:
- The ongoing management of the entity
- The right of owners to transfer their interests in the business entity
- The option of transfers within the lifetime of owners, whether due to voluntary or involuntary withdrawal from the entity
- Transfers upon the death of an owner
- Transfers due to the disability or incapacity of an owner
- Terms and source of payment
- Other issues that relate to the entity
There is no boilerplate agreement that you can download and fill in the blanks on to achieve your unique and specific business succession goals. You’ll need to carefully consider your goals, then draft them into an agreement that is legally enforceable in the event that disputes develop.
Agreements Set Valuation Methods for Determining What Your Business Interest is Worth
One of the most important factors in a business succession agreement is the determination of what method will be used to value your business interest. Without such an agreement, a surviving business owner may try to use a method of valuation that drastically reduces the amount of your share and what your heirs would take upon your passing. While you would hope that you can trust your business partners to abide by the agreement and honor your wishes, at times court action is necessary.
It is helpful to enter into important business agreements that determine valuation methods or dispute resolution practices at the start of a business. When these agreements are made before the establishment of the business, owners and partners are better able and willing to come to mutually beneficial and fair agreements. Waiting until the business is moving can lead to the potential of impactful and costly disputes over how to come to an agreement.
Dispute Resolution Methods Can be Established Through Agreement
When considering your business succession goals, it is also important to incorporate dispute resolution options and methods. Important questions that your business succession agreement can answer include:
- What happens if there is a dispute between co-owners and the family of a deceased owner?
- What if an owner wants to transfer their interest in the entity to a fellow owner?
- What if an owner wants to transfer their interest to a third-party unknown to you and/or the other owners?
- What if the owners do not agree on the valuation method to be used to determine the deceased owner’s share?
Without answers to important questions like these in a legally enforceable business agreement, costly lawsuits and disputes may arise that diminish the value of your business.
Buy-Sell Agreements Can Clarify Business Succession Pathways
No business owner wants their valuable investment to cause problems for their family and their business partners after they die. To avoid uncertainty as to what happens when a business owner passes or becomes incapacitated, it is helpful to establish a buy-sell agreement. A buy-sell agreement is able to protect the ownership interests of continued owners against the claims of a spouse or other descendants of a deceased owner.
Often, the courts will honor a buy-sell agreement that restricts the transfer of a business interest to persons not involved in the business. This can make it so that the heirs of the deceased owner take other aspects of their estate, reserving the business interest for those persons involved in the business. With a buy-sell agreement in place, you as the owner are in a more solid position from which to determine how your interest transfers to your family or designated successors on your passing.
Taxes Must be Accounted for in Your Business Succession Plan
There are a number of substantial tax considerations that will impact the transfer of your business interests to your family members. Insufficient planning can expose your business and related assets to huge estate and gift tax costs. In some cases, this can even lead to the forced sale of the business to cover these tax obligations.
A variety of estate planning techniques can be put to work on your behalf by your business succession lawyer to guard the value of your business and support the effective transfer of its value to your heirs.
Get Help On Your Business Succession Planning
To explore options on how to establish the best possible succession plan for your business, connect with one of the business law attorneys from Davidow, Davidow, Siegel & Stern. Give us a call at (631) 234-3030, or visit our site to schedule a consultation.