196 East Commerce Street
Bridgeton, NJ 08302
What will happen to your business when you are no longer around to keep it running? This is an important question, and one that too often goes overlooked by business owners in New Jersey. Whether you want your spouse to take over the business, you want to leave the company in the hands of your children or you have something else in mind, to make sure the transition is as smooth and uncostly as possible, you need to have a plan in place.
For business owners, business succession planning is a critical component of the estate planning process. Who will own the business? Who will run the business? What can you do to reduce your loved ones’ tax burden? These are just a few of the most basic questions that need to be answered. At Helmer, Conley & Kasselman, P.A., we bring decades of business law and estate planning experience to helping New Jersey business owners develop comprehensive succession plans that avoid uncertainty and position their chosen successors for long-term success.
Whether you are a solo private practitioner or a shareholder in a privately-held company with tens or hundreds of employees, planning for an orderly transition serves multiple purposes. From the mundane (e.g., making sure your successor has all of the necessary passwords and credentials) to the business-critical (e.g., providing reassurances to clients and customers), the more you can do to prepare, the better able your successor will be to hit the ground running.
In addition to these types of business-specific considerations, business succession planning commonly involves family and financial considerations as well. For example, suppose one of your children has shown an aptitude for the business, but not the other. Should you leave the business to just one of your children? If so, what else can (and should) you do in your estate plan to account for this uneven distribution? Are your spouse and children likely to have different views about how to run the business in your absence? Could this lead to disputes that could sever ties in the family (not to mention threatening the business as a going concern)?
The age and health of the partners in the business must be factored into decisions to make now concerning who is going to own and operate the business in 10 or 20 years. Traditionally, Shareholders Agreements (Buy – Sell Agreements used for corporations and Operating Agreements used for LLC’s) create the structure to memorialize these decisions.
For instance, what happens if your partner dies? If provisions are not made in advance, his or her widow/widower (or even an adult child) will suddenly own a significant portion of your business. That being the case, they may well have a veto power over important corporate decisions. The LLC may well owe them a significant amount of repayment of initial capital. Additionally, you may have gotten along well with your partner, but you may not (and often don't) get along very well with his or her spouse or child when he or she is in control. Accordingly, you need to decide how to purchase the shares in the event of your partner’s death or disability. You will probably need to obtain life insurance or disability insurance to purchase his or her shares.
What about when your partner decides to retire? Have you provided a pension? Do you intend to pay him as a consultant into the future? Do you plan to simply cut him or her loose with no provision for their older years? Remember that the rules you will apply for your partner are going to apply to you too. Finally, if you decide you just can't do business with you partner any longer, what provisions are there for mandatory buyouts or mandatory sales of the stock to other partners? How are these to be funded? While you're very excited and eager on day one, you may need a "pre-nuptial agreement" to protect you down the road.
When we advise business owners with regard to succession planning, we help them develop plans that address these types of considerations while also taking into account issues such as:
While we emphasize thoroughness in business succession planning, we also recognize that succession planning is inherently about the future. Our attorneys will help you prepare a plan that meets your personal and business needs while providing the flexibility you need as circumstances change over time.
If you would like to speak with an attorney about business succession planning, we encourage you to contact us for a free consultation. To discuss your needs in confidence, call 1-877-435-6371 or inquire online today.
Don’t let your rights be jeopardized.