A succession plan for a business owner is unique to the owner in the business. While plans can vary significantly, each succession plan should include the following components:
- An effective and funded buy-sell agreement that identifies ownership transfer upon disability or death.
- A special limited power of attorney that identifies the authority for decision-making in the event of disability.
- If the business is to be left as an inheritance, and estate plan that effectuates the desired vision for the inheritance.
Each of these components have unique qualities. Additionally, each can be affected by the nature of the business and pertinent industry. If the business involves a licensed professional, and the transition typically requires a licensed professional to assume the business. If the business is to be sold, there has to be a method for determining the value, whether a set price, formula, or appraisal.
Succession plans require consideration of the ultimate desired destination of the business. Is the business to become publicly traded? Will be a franchise? Will it be sold to competitors, partners, or strangers? Will be left as an inheritance to children, grandchildren, or other family members. If it is left as an inheritance, what is to be done if some family members work in the business, and others do not?
Despite being critically important to the survival of a business, succession planning is done in a small number of cases. Absent succession planning, such matters often require court trials, and a judge determines how to transition the business. The ultimate goal of succession planning should be twofold: (1) to ensure that the vision of the business owner lives on; and (2) to avoid conflict and court battles.
If you have any questions about your succession planning for your business, feel free to call the Vaughn Law offices at any time. Whatever your needs may be, we would be happy to discuss them during an initial consultation.
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