After working hard to build up your company in Shelbyville, Kentucky, you want to ensure your business remains in good hands when you can no longer run it. Whether your time owning and running your business ends due to retirement, incapacity, or death, a succession plan is crucial for a smooth transition.
Without a succession plan, you face many risks. The business could be torn apart by infighting among claimants. It could result in litigation as co-owners and officers struggle to decode your intentions. Your business could even face bankruptcy as your heirs force the company to cash out your ownership shares.
Continuing business operations after an owner moves on is one of the greatest challenges a business will face. Contact Berkley Oliver in Shelbyville, Kentucky to discuss the steps you can take to prepare for this challenge.
Planning the Future of Your Business
Almost any type of business can benefit from a succession plan. However, those with the greatest need for such an arrangement include:
- Family farms
- Family businesses
- Small or closely held businesses
- Sole proprietorships
Family businesses are particularly prone to infighting and litigation, and sole proprietorships and closely held businesses often face financial issues or even shut down without a clear leadership plan.
You and your business succession lawyer should address the following issues to avoid these pitfalls.
Business Succession Structure
The structure of your business helps define your options for business succession. Most business structures have a customary way of planning for succession, which allows you to choose a business structure that fits your succession plan and a succession plan that fits your business structure.
Your options for business structures are:
- Sole proprietorship
- General partnership
- Limited partnership
- Limited liability company (LLC)
- Corporation
The business structure is usually selected early in your business formation. However, you can always reform your business to match your business succession plan. It is also possible to use your business’s organizational form to pick a succession plan that matches it.
For example, a corporation allows for a great deal of financial flexibility in your succession plan. In a corporation, the officers handle daily operations while shareholders vote on major issues. When you die, the corporation can appoint a new officer to take over your duties.
Importantly, a corporation does not need to buy your stock back in the way another entity might need to buy back ownership shares such as in a partnership or LLC. As a result, your company can continue with minimal disruption.
A business succession attorney will help you pick the right structure to carry out your wishes for succession.
Ownership Transfer
You need to think about how your ownership shares will transfer upon your incapacity or death. Transferring ownership of a sole proprietorship requires the title to all the business’s property to change hands. As a result, dozens or even hundreds of individual property transfers may be necessary.
A partnership or member agreement usually governs the transfer of ownership of a partnership or LLC. This agreement might require the business to dissolve when a member dies or to buy out a share upon the owner’s death.
This process can also complicate a succession plan or guarantee that your heirs receive the benefit of your business ownership share but do not run your business. For example, if you are a doctor, you and your physician partners will not want your non-doctor heirs to take over your share of a medical practice.
You can discuss the ownership transfer process typical for your business structure with a business succession lawyer.
Management Transition
It is additionally important to consider who should take over your management responsibilities. Management and ownership are separated in some business structures, and you can hire anyone to fill your management role. In other business structures, the owners handle management. In those structures, you must pick a co-owner to assume your management duties.
Thus, the manner of your management transition will depend on your business structure. In turn, your business structure will dictate to whom and how you transfer your management role. A business transition attorney can advise you on how to transfer your management duties as you want.
Business Succession Property
As part of the succession process, you must ensure that your business property is preserved and retained for use by your business. Problems with business property transfers often arise in sole proprietorships and family farms.
Owners tend to buy property and equipment in their own name. When they die, that property becomes part of their estate instead of remaining with the business. For example, a farmer might buy a tractor and put their name on the title. This means the tractor passes with the farmer’s other personal property upon death instead of staying with the business. A business succession lawyer can help you transfer your business property directly to your business.
Contact a Business Succession Attorney
A business succession crisis can disrupt families and their primary source of income. Contact Berkley Oliver in Shelbyville, Kentucky, today for a free consultation to discuss the steps you can take to plan the best business succession plan for your company.