Creating a Business Succession Plan

Unexpected events can happen at a moment’s notice. That’s why preparing for any eventuality is crucial in ensuring that your assets and loved ones are protected. A comprehensive business succession plan can offer you peace of mind in knowing that your business is prepared for any outcome well in advance.  

At Northwest Elder Law Center, Attorney Robert Taylor-Manning works with his clients to develop business succession plans that make sense. In particular, he serves the people of Kennewick, Washington, in their business succession and estate planning needs. Northwest Elder Law Center also provides legal services in neighboring areas, such as Olympia, Tumwater, Lacey, Shelton, Centralia, and Chehalis. 

What Is a Business Success Plan? 

It’s estimated that roughly 67% of Americans do not currently have an estate plan in place. This figure is alarming, considering the serious implications that dying without an estate plan can have for families and assets. 

Specifically, a business succession plan helps protect assets when a person passes away or retires. A business succession plan determines what happens to a person’s business interests after they have left due to death or retirement. Individuals must determine who will assume leadership or ownership of the business and put proper procedures in place to accomplish this succession.  

Bear in mind that stock options do not necessarily go directly to heirs. Depending on a company’s articles of incorporation, business partners may retain stock interests in a company before the individual’s next of kin. This situation may lead to costly litigation, jeopardizing the company’s existence. Therefore, drafting a business succession plan is essential in protecting your business's assets and looking after your loved ones. 

Why Is a Business Success Plan Important? 

There are three key reasons why a business succession plan is important: 

Certainty 

First of all, drafting a business succession plan provides certainty. Business partners know what to expect when an individual passes away or retires. Similarly, loved ones understand their roles in the individual’s business interests.  

Protecting Loved Ones 

A business succession plan is part of a broader estate plan. An estate plan allows individuals to protect their loved ones by allocating resources and assets to secure income and look after those who need it most. 

Standard Business Practice 

Establishing a business succession is a standard business practice. Business partners are required to draft a business succession plan when companies go public, apply for financing, or for insurance purposes. Remember that suppliers, investors, and lenders seek as much certainty as possible from their business associates. Consequently, a business succession plan communicates stability. 

What Are the Steps for Creating a Business Succession Plan? 

Here is a look at how to create a business succession plan: 

Hire an Experienced Attorney  

While business partners can try going at it alone, creating a business succession plan without the right legal counsel may lead to major complications down the road. That’s why retaining the services of a professional estate planning attorney can facilitate the entire process while ensuring full legal compliance. 

Review Company’s Constitution 

Reviewing the company’s constitutional statutes is crucial in establishing a plan. For example, a company’s articles of incorporation may determine that shares of a deceased or retired partner are distributed evenly among the other partners. Additionally, company statutes may indicate that outstanding shares must be sold back to the company. 

Another possible arrangement is to have shares go to a third party such as a venture capital firm. This situation generally occurs when a larger investment firm purchases a controlling stake in a company. 

Determine Successors 

When company statutes do not explicitly state that business partners get control of outstanding shares, individuals must designate successors. In addition to naming family members, business owners can employ an estate administration attorney to oversee the transition and management process. 

Tax and Probate Considerations 

Bear in mind that taxes may apply upon ownership transfer. Additionally, business interests may need to go through probate to finalize ownership transfer. A common approach is to place shares or business interests in a trust. Doing so can sidestep probate while greatly reducing estate taxes. 

Common Obstacles  

Business owners may expect to encounter some of the following obstacles: 

Resistance From Business Partners 

Business partners may not agree with family members taking over company interests. A common workaround is to agree on a purchase of business interests, paying out a lump sum to family members. 

Taxes 

Estate taxes may be a serious consideration. Therefore, designing a plan that minimizes estate taxes is a good idea. Working with an experienced estate planning attorney can reduce the need to pay exorbitant taxes. 

Probate 

The probate process can open the door to unexpected challenges. A carefully drafted business succession plan helps reduce the risk associated with the ownership transfer of business interests going through probate. 

Seek Trusted Legal Guidance 

At Northwest Elder Law Center, Attorney Robert Taylor-Manning believes in proactively dealing with unforeseen situations. Get professional legal advice that can help you protect your business interests and those you love. Remember, the best day to plan is today.