Running a business consumes a lot of time and energy. It doesn’t matter whether you’re an entrepreneur with a successful startup or a longtime owner of a multi-location corporation – your days can be so busy that you don’t think a lot about the future.
While it’s understandable that you want to focus on making the business as successful as possible, failing to create an estate plan can undermine years of dedicated work and prevent your legacy from being passed on to new owners or the next generation. These four estate planning tips can ensure that the company remains in good hands when you’re no longer involved.
Create a Buy-Sell Agreement
If your company is a partnership or corporation / LLC with more than one owner, setting up a buy-sell agreement is essential. This agreement specifies:
- How an owner’s interest in the business will be redistributed if they pass away, become disabled, or even go through a divorce or personal bankruptcy
- How the value of the business is determined: by the market, by income, or by its assets
There are different types of buy-sell agreements, such as cross-purchase (which allows other partners or stakeholders to purchase the shares of a partner who dies or becomes disabled) and stock-redemption agreements, which enable the remaining owners to repurchase the stock of a deceased or departing owner. A business succession attorney can recommend an agreement that is compatible with the structure of the business.
Establish a Succession Plan
A comprehensive succession plan will identify new owners and the employees who can assume managerial and executive duties when you’re no longer involved with the company. It will also clarify the ownership transfer process, indicate how disputes will be resolved, and establish rules for hiring family members (if applicable).
Name a Power of Attorney
A general power of attorney names someone to run the company in the event that you become incapacitated. This person, who can be a family member, partner, or another owner, can take over essential duties that are normally your responsibility, such as managing the business and its employees, paying company debts, and collecting overdue invoices.
Create a Last Will and Testament
A Will is the most basic estate planning document, but it enables you to control how your business assets are distributed and who will receive them. If you run a sole proprietorship, you can specify that the executor or another trusted representative receive access to the company’s bank accounts, professional email, social media profiles, and other assets.
Contact an Estate Planning Attorney
An estate plan is beneficial for anyone, but for a business owner, it’s essential. By putting one together, you enable the company to continue operating and minimize the risk of disputes between family members and remaining partners or owners. The estate planning team at Rosen Law, LLC can help you create a solid plan that supports a smooth business succession and avoids disputes, confusion, excess taxation, and potential litigation. For more information, please call (516) 437-3400 today.