FLORIDA BUSINESS SUCCESSION PLANNING
Ensure Your Business is Handed Off to a Trusted Successor.
Do not wait. Business succession planning must start on or before day one of operations. If you own a business, this step is crucial to ensure a smooth transition of ownership and operations. Equally important is ensuring that your business succession plan blends with your estate plan.
An owner or owners of a business of any size must have in place some form of either a retention plan, buy-sell agreement, or similar buyout agreement well in advance of retirement or possible unexpected death. This legal agreement can be incorporated into an existing business operating agreement or written as a stand-alone document.
Put simply, a business succession plan lays out the terms of how one or more individuals, or an entity, may retain or purchase a deceased or disabled business owner’s interest in a business.
Beneficial for family businesses and other small businesses
If you run a family-owned business, and intend to keep it in the family, then a retention plan should be put in place that involves keeping the business or shares within the family. With a retention plan, a spouse, children, or other relatives will retain control of assets based on specific terms stated in the plan.
If you are a member of a multi-member small-business, then a buy-sell or buyout agreement is the appropriate vehicle to allow another member or the business itself the right to buyout your shares of the business.
If you are a solo practitioner or sole proprietor, you can use a buy-sell agreement to sell the business to a trusted key employee or to a fellow business owner after your death. If, however, you want to allow a trusted family member to continue to operate your business, or to sell it, then a retention plan is an option to consider.
Pitfalls of failing to plan
Having no succession plan in place will most likely result in an entire solo practice or shares in a larger business being passed on to the owner’s family. Most families are not prepared to run their deceased loved one’s business or take on the responsibility of holding shares in a larger company. Additionally, being left with no directions could leave a family in conflict as to what the appropriate actions are moving forward – such as who is responsible for day-to-day operations, what is the fair market value of the business or shares (among other issues).
It is important to note that the mismanagement of your business or or shares, or sale to an unknown buyer, may result in damages to your client, customers, or shareholders, which could lead to potential lawsuits or derivative actions – something you do not want to burden your family or successors with after you’re gone. That is why it is always important to make sure you have a well-advised and well-thought out plan in place for your business far in advance of retirement or in the event of an untimely death.
In any scenario, your estate plan should make specific reference to your retention plan or buy-sell agreement so that you can ensure that your business is properly managed, operated, and/or sold after you pass away, and those placed in charge are fully advised as to how and what to do.
If you are a small-business owner, solo practitioner, or just want to learn more about Florida business succession planning offered by my law office, please contact me today!
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