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Succession Planning

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 theĀ IRS website for more information.