Do You Have a Business Succession Plan?

If you are the owner of a business located in California, you must have a business succession plan. The right Fresno estate planning attorney can work with you to develop the succession plan that is most appropriate for you and your business.

What is a business succession plan, and why is it so essential? When do you need to have your succession plan in place? What benefits can the right business succession plan provide? If you’ll keep reading, you will learn the answers that every business owner in California should know.

A business succession plan is a legal document prepared by the owner of a business. It sets forth the owner’s instructions for any change in the ownership of the business. A proper business succession plan allows you and the business you own to move into the future with confidence.

When Should You Have a Business Succession Plan in Place?

If you own a business in this state, you can’t wait until your retirement to create your succession plan. That may be too late, because no one knows what tomorrow may bring. You should prepare your succession plan as early as possible.

That way, should the unexpected happen, the succession plan will provide instructions to others, reduce their confusion regarding what steps to take, and maybe even keep the business alive – and prospering – for your employees and your loved ones.

As you know, a business can’t survive without a capable, active owner or manager at its helm. If that owner or manager dies suddenly and unexpectedly, becomes incapacitated, or cannot guide the business for any reason, the operation could be left with unmet obligations and unpaid debts.

Business owners must be prepared. As a business grows in size and complexity, having a concise, thoughtful succession plan becomes increasingly important. The best succession plan benefits the owner, his or her successor, and the customers and employees too.

What Does a Good Succession Plan Do?

A business succession plan can designate the new owner or several new owners, or the plan may spell out instructions for selling the company – to a third party, to one or several employees, or even to someone who is already a co-owner – when the time comes.

A family-owned business can face unique challenges if the person who runs the operation abruptly becomes incapacitated or suddenly passes away. A California attorney with estate planning experience can help families with business formation, planning, and succession.

However, if a California business has not established a succession plan, an owner’s stake in most cases passes automatically to the owner’s heirs (as a part of the owner’s estate) or to the other shareholders (if the owner has no heirs).

If a Business is Family-Owned, What Can Happen?

In family-owned businesses, the lack of a succession plan may trigger disputes among family members. A family member might feel entitled to more than others who were less involved in the business. Good succession planning requires time and consideration, but it’s worth the effort.

On the other hand, if your intention is to sell the business, your succession plan should clearly explain your company’s operating procedures. An estate planning attorney can provide the legal advice you will need, and your attorney will guide you through the succession planning process.

If you do not intend to sell the operation, you may choose someone to become the new owner. It’s a way to provide effectively for your loved ones after you’re gone, but planning for your heir to inherit your business entails a different set of complications.

Let the Right Attorney Help You Reduce Taxes and Avoid Disputes

A succession plan may designate one new owner or divide ownership among several parties. Giving the business to your heir means more taxes, but the right estate planning attorney can make that burden as minimal and pain-free as possible.

For a corporation, if a succession plan has not been established, shareholders may be unable to buy the deceased or incapacitated shareholder’s shares. Disputes may erupt that cause profits to decline. If someone with management duties must be quickly replaced, is the business ready?

What Should Every Business Succession Plan Include?

Every business in California is unique, so business succession plans have to be customized. Nevertheless, every good business succession plan includes the following:

1. Determining a timeline: A succession plan can become operative on a specific date or at the time of the owner’s death or incapacitation.

2. Naming a successor: If you pass the business to an heir instead of selling it, you must designate that heir by name in the business succession plan.

3. Have the company’s standard operating procedures spelled out in advance in an operations manual, employee handbook, organizational chart, or another appropriate document.

4. If you are selling the business, to ensure that it is sold for what it is actually worth, have the operation valuated, and have the valuation regularly updated.

5. Be detailed and precise about an ownership change. If you mean to sell the business, indicate precisely how the sale will be accomplished.

Should You Move Your Business Into a Trust?

Other arrangements may be made that will transfer an owner’s or shareholder’s interest in the business into one or more trusts that may be paid out over time to family members. Assets can also be divided among the company’s employees if that is the business owner’s wish.

High-quality legal advice and services are essential to the achievement of every successful business. Developing the succession plan that is right for you and your business takes the right lawyer’s assistance and insights.

If you own a business in California, or if you are a shareholder, the succession plan for your business or shares should be a part of your estate plan. It should protect not only the business but also whoever will inherit your business or your shares in the business.

How Will an Estate Planning Lawyer Help You?

With so much to consider, and with no guarantees regarding tomorrow, the time to develop a business succession plan – or a personal estate plan – is now. You will need to work with a Fresno estate planning attorney who has abundant business planning experience.

If you have already created a business succession plan, this may be the right time to review and update that plan. The right California estate planning lawyer can make sure that your original plan is appropriate or make the necessary changes on your behalf.