When you are starting a business, you may not consider your retirement or how you will ensure the legacy of your hard work continues. However, it is important to consider a way to protect the assets you have built as a business owner. A knowledgeable Texas business succession planning lawyer at The Law Office of Jason Carr can consult with you about business succession planning and make recommendations based on your unique circumstances. Consider contacting us at (214) 800-2366 to schedule a confidential consultation, and ensure your legacy remains protected.
What Is Business Succession Planning?
Business succession planning is the process to pass leadership and ownership within a company to a subsequent person or entity. Succession planning is the process of identifying critical positions within the business and developing action plans so that certain individuals can assume those positions.
The process helps to ensure a business has the right people in place in the future. A good succession plan identifies possible vacancies and future staffing needs, as well as the relevant skills who may have the skills to fill them. A succession plan may pass the business on to another person, such as a family member or valued member, or provide a way for the owner to sell their share in the business to someone else.
Importance of Business Succession Planning
A sound succession plan provides many benefits to the business and its owners, including:
- The method to determine the way to value the business is determined before any desire to sell when conflict is minimal.
- The succession plan can help avoid uncertainty, conflict, or disruption.
- Family-owned businesses can articulate a way to keep the business in the family, if desired.
- Tax-savings plans can be considered to reduce the potential tax liability associated with selling a business.
- Business owners can retain control of the process to pass ownership and leadership in the business, rather than relying on a third party.
- If the succession plan provides for employee ownership, this opportunity may motivate employee’s performance and career development.
- External takeovers can be avoided.
- Shareholders may have greater confidence in the business when a clear succession plan is in place and future owners have worked as integral members within the company.
- A business succession plan can create a clear exit strategy for business owners who want to retire.
What Goes into a Business Succession Plan?
A business succession plan generally provides details about the following matters:
Timeline
The plan may contain information about the timeline that may be involved if a succession occurs.
Evaluation Method
The succession plan may include details about the sales price or how to equate it.
Consideration of Successors
You may indicate particular people you are considering for a successor or the strengths or skills you are looking for in an ideal successor.
Funding Provisions
A succession plan may also indicate how the succession will be funded, such as through life insurance or a seller’s note.
Tax Impact
Business owners will also need to carefully consider the tax impact of selling or transferring their business to someone else. Depending on the situation, the transfer of ownership may cause the accrual of estate tax, capital gains tax, or higher income tax.
Legal Authority
A business owner will also want to ensure the succession goes smoothly. An owner may provide power of attorney for a trusted person to carry out the logistics of transferring ownership if they become incapacitated and cannot carry out these duties on their own.
An experienced Texas business succession planning lawyer from The Law Office of Jason Carr can create a power of attorney that gives a trusted person the power to value the business, take tax-efficient approaches, protect assets, and prepare for the next phase of your business’ management.
Options for Business Succession Planning
There are several options that businesses have with their succession planning, including:
Selling to a Co-Owner
If the company is closely held, it may be the simplest approach to sell your share to a co-owner. This option allows you to pass your portion of the business to existing owner(s) so that the current ownership structure is not disrupted. An experienced lawyer can prepare an agreement that states that the remaining owners agree to purchase another owner’s share if they choose to leave the company.
Selling to the Company
If there are many owners of a business, such as if company stock is sold to many people, another option may be to sell the ownership interests back to the company, which can then sell the shares to the remaining owners or offer them for public sale. This option can sometimes be provided for with a stock redemption or entity purchase plan. This is an arrangement in which the business purchases life insurance on each owner of the business. Once an owner dies, the business uses the life insurance proceeds to purchase the ownership interest from the deceased’s estate.
Gifting to an Heir
Another option to transfer ownership of a business is to pass ownership to a family member. This is a commonly chosen option for business owners with children or those who are running a family-owned business.
After deciding on the next owner in line, the business owner can provide clear instructions regarding how the transition will occur. If multiple heirs will inherit the business, the business owner may create a buy-sell agreement that allows the heirs who would not want responsibility for the business to sell their shares to those who do want to be involved in the business.
Selling to Key Employees
Another option is to sell the business interest to a key employee or small group of employees. This option is sometimes used by owners who do not have a co-owner or family member who is interested in taking over the business. By selling to a key employee, the business owner can be assured that they are selling the business to someone who has a more intimate knowledge of the company and who has a vested interest in seeing the business continue to succeed.
Selling to an Outside Party
Finally, a business owner may choose to sell their business to an individual or entity outside the business. The business may seem attractive to outside investors if it is turning a profit and has a setup that allows someone else to take over with minimal changes.
Contact a Dedicated Texas Succession Planning Lawyer Today
If you need help with business succession planning, consider contacting a dedicated and experienced Texas business lawyer at The Law Office of Jason Carr. Our business attorneys can discuss your individual needs and how we can help draft a plan that ensures your legal and financial rights remain protected. We look forward to helping you protect the business you built. You can schedule a confidential meeting by calling our legal team today at (214) 800-2366.
