For many business owners, their company is a legacy that they want to continue long after they’ve exited the business. This is especially true of family-owned businesses.

Reasons to plan for the future

• Death of an owner of partner
• Disability of an owner or partner
• “Divorce” between partners who no longer get along
• Departure of an owner or partner

Planning for succession can involve

• Incorporating the business to separate it from you (sole proprietorship), so it becomes a separate entity unto itself
• Developing an employee benefit plan and policy to address the departure of a partner due to retirement, death or disability
• Creating an agreement between parties as to who buys out whom should one or more partners wish to leave the company
• Purchasing life insurance so surviving owners can afford to purchase a deceased owner’s interest
• Regularly valuating the business
• Gifting a percentage of ownership shares to family members while the owner is still alive to reduce tax on the owner’s estate upon the owner’s death

Points to consider

• If you are transferring the business to a family member ask yourself:
  • Does the person have the same passion for the business as you do? Would they rather be in another field?
  • Do they have the talent and managerial skills to take on the job?
• Family businesses have special needs. Visit the Small Business Administration’s website to learn more about succession in family business.
• You may need a new Employee Identification Number if the organization or ownership changes. See the IRS website for more information.