Having a clear business succession plan is important for business owners and their families.
When considering how to make sure your business continues to thrive, it’s important to remember that if you do nothing, your business already has a default plan in place: if no additional planning is done, your business is an asset of your estate and will be subject to probate.
Forbes’ article, “Business Succession Planning In The Internet Age,” says that there are four issues with this default plan. First, it can take years for a court to probate your estate. In that time, your business can dry up when probate is finalized. Next, if you do not have an estate plan, your heirs may fight over who will inherit the business. Whoever inherits the business under the state’s intestate succession laws may not be the best person to make sure your business will continue to grow and be successful. Finally, if you have co-owners, they might not like your heirs and could get into disputes with the new owners that harm the business.
There are two legal tools business succession lawyers consider when reviewing your options: a buy-sell agreement and good estate planning.
A Buy-Sell Agreement. This is a contract between the co-owners of a company that addresses a variety of business-changing events, such as when an owner dies. Rather than the deceased owner’s equity being a part of the assets distributed during probate, the buy-sell agreement can include an agreed-upon amount that will be paid to the estate in exchange for the business repurchasing the equity. The purchase is often financed with a life insurance policy on each owner of the business.
If you have co-owners, it is in the best interest of all to make sure you get to decide with whom you remain in business at the death or disability of an owner.
Estate Planning. Instead of allowing your business to be subject to probate, a business owner can work with an estate planning attorney to make the business an asset of the owner’s trust.
A difficult issue is how to be fair to a child who has been vital to the growth of the business while being fair to any other children who are not involved. Working this out with a team of advisers is crucial, which might include your business succession attorney, company accountant, and non-family key employees.
With either option, be sure you document the important digital assets for the continued operation of your business. This may include customer lists, intellectual property, and creative products. It is important to remember these tips on considering your digital assets:
- Understand the policies that impact your tools. Review your software provider’s policies about what happens if your company needs to name a new point of contact, pay bills differently, or be transferred to a different company, in case the unexpected happens.
- Security and redundancy. A company’s success requires owners and employees to keep proprietary information and client information secure. However, the concern for safety must be balanced with redundancy that considers which people will have access to digital assets and an understanding of what to do with them if the owner or main management team is unable to tend to business as usual.
- Add digital assets in legal documents. Include an inventory of digital assets in your buy-sell agreement or estate plan. Be specific about who should get access to digital assets.
Creating a detailed plan as to who should have access to your business’s digital assets in case of your incapacity or death is an important part of succession planning.
Reference: Forbes (April 8, 2019) “Business Succession Planning In The Internet Age”