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.