You’ve worked diligently to build and grow your business, but no company can survive without an able owner. Business succession planning allows business owners to create a strategy to protect themselves and their businesses in the event of a transition in ownership or control due to death or retirement.
At attorneys at Palmer & Slay, PLLC, we will work with clients in Mississippi to create effective business succession plans. We will develop a plan of action that will reduce financial complications and help eliminate confusion during transition. Whether you own a small family business or a large corporation, our experienced attorneys can provide solutions.
The Benefits of Business Succession Planning
When an owner or manager dies, illness, or retirement, businesses are often left scrambling to identify a suitable replacement. Small businesses and large corporations can avoid a tumultuous business transition by establishing a business succession plan with a knowledgeable attorney.
Without a business plan, another shareholder’s stake in the company will be passed on to his or her relatives as part of the estate or absorbed by other shareholders. For family-owned businesses, this process can disrupt the day-to-day operations of the business, who may feel they are entitled to a larger share of the business than others who are involved.
What Happens to Businesses Without a Succession Plan
Family-owned businesses face unique challenges when it comes to business succession. For example, family members may disagree about what should happen to the business when the owner dies or retires. Family members most interested in retaining control may have the least business savvy or lack the work skills or work ethic to drive the business forward successfully.
For larger corporations, clients and employees may leave the company when the owner passes away. They may fear the instability to come. The remaining shareholders may not have enough liquid assets to purchase the existing or deceased shareholder’s shares. Finally, if the existing shareholder had a management duty, his or her replacement may not be equipped to take over his or her role without an effective transition period.
Developing Succession Plans for Family-Owned Businesses
Successful estate planning should address each business owner’s unique needs and goals. The plan should keep the business care within the family through a retention plan. Additionally, the plan should offer vital employees and shareholders a larger stake in the company.
Another important aspect of business succession planning is preserving institutional memory when the business owner or other current managers have retired or passed away. For example, you can empower advisors to aid the transition team to engage in the following tasks during the transition period:
- Empower advisors to work with the transition team to ensure continuity
- Oversee the company’s day-to-day operations
- Provide financial resources for heirs not directly involved in the business
- Provide training to key employees who will take over the company
- Ensure the business has enough cash flow to pay taxes
The Benefits of Working with a Skilled Business Succession Attorney
For these and other reasons, family-owned business owners must work with an attorney to create an effective business succession plan. At Palmer & Slay, PLLC, we provide comprehensive business succession planning services. When you work with our estate planning team, we will help you every step of the way by taking the following steps:
- Determining the fair value of your business
- Determining the importance of continued involvement by other family members
- Determining the passion and business aptitude for the business among other family members
- Identify the family member or members best suited to making the business successful for the benefit of all of the stakeholders
- Work with the owner to establish his or her goals for retirement
- Communicate the business succession plan to all of the shareholders
- Carefully document the succession plan
You should also create an ownership and control structure to balance the family member’s needs with the need for new leadership to be successful. Succession plans can be part of the owner’s living trust or will, and an attorney can help you employ sound estate planning strategies to minimize your tax liability.
Creating a Family Limited Partnership (FLP) or Limited Liability Company (LLC)
A family limited partnership (FLP) is a legal structure in which family members pool money together to run a business project. An FLP can be used to pass wealth to younger generations while securing tax protections. For example, individuals can gift FLP interests to other individuals tax-free every year up to the annual gift tax exclusion amount.
There are some disadvantages to creating an FMP. They can be costly to set up and difficult to maintain. There are also risks of members incurring debt, impacting the other members. Some family businesses decided to form a regular Limited Liability Company (LLC) or a partnership agreement.
Others create a corporation to access extensive personal liability protection. Ownership restrictions regarding various entities can be helpful to keep the business owned by family members. The attorneys at Palmer & Slay, PLLC can help you create a business structure to protect you and your business’s current and future interests.
Life Insurance Policies
Life insurance policies are another effective way to protect your loved one if something happens to you. An often overlooked use of life insurance policies is for business succession planning. An insurance policy along with a purchase agreement, can provide the next business owner with the liquidity needed to buy out the deceased business partner’s share of the business.
Using this strategy can help you provide more certainty on how the ownership transition should occur. Life insurance policies on key employees, known as key person insurance, can help a business recover financially when a high-producing employee or partner passes away unexpectedly.
Finally, an insurance policy allows owners of family businesses to distribute their assets to their children fairly. Perhaps one of your children is more interested in running the business than your other children. A life insurance policy can help you leave your business to the heir interested in running the business while leaving the cash equivalent of the business’s value to the other heirs.
Contact a Mississippi Business Succession Attorney
The skilled attorneys at Palmer & Slay, PLLC work with clients in Mississippi to create effective business succession plans. If you have questions about creating or updating a business succession plan, don’t hesitate to contact Palmer & Slay, PLLC to schedule an initial consultation.
Palmer & Slay, PLLC, is dedicated to assisting clients with their business succession planning needs in Mississippi, including Scott County, Rankin County, Brandon, and beyond.