Let’s face it! You’re a small business owner and you have a lot on your plate. You are likely working very long hours, you are working on the weekends, your family is counting on you, your employees are counting on you, there is the constant awareness of whether you did something that will get you sued, and you may even be wondering if you will be getting a phone call from the civil rights commission regarding the employee that you fired last week. In addition, although your business is growing and going great, you are wondering what is going to happen when it is time for you to retire? Should you sell your share to your business partners? Should you bring in a new business partner? Or, do you desire to bring in your son to take over the business when it is time for you to retire?
Thorough and effective estate planning and business succession planning is not just important for your family and your business’ survival, it is imperative with the use of Wills, Irrevocable Trusts, Powers of Attorney, Living Will, Buy-Sell Agreement and Succession Plans, as well as asset protection strategies.
For the small business owner, an overarching concern is liability and being sued for the actions you and/or your employees make in connection with your small business. As such, an important act that a business owner should take is to insulate himself from personal liability by establishing a legal entity for his business such as a Limited Liability Company or a Corporation. Through the creation of a legal entity for your business, you can enjoy limited liability. This would prevent your personal assets, such as your bank accounts and your personal residence, being subjected to seizure in the event that your business is sued.
In addition to insulating your personal assets from liability, you should consider estate planning strategies such as irrevocable trusts to protect your personal assets in the event that you are sued individually.
Business Succession Planning
No conversation regarding estate planning with a small business owner is complete without discussing the succession of the small business that the owner either created or bought into after it was established.
A very important part of business succession planning is putting in place a buy-sell agreement. This type of agreement is a form of advanced planning for the business that will address concerns such as: (1) what will happen when an owner wants to leave the business, (2) when an owner wants to retire, (3) if an owner goes through a divorce, (4) or even if an owner becomes insolvent and is forced to declare bankruptcy. A buy-sell agreement can provide, for example, that in the event of the death of one of the owners, the deceased owner’s share must be offered for sale to the existing business owners before it is offered to an outsider. In addition, it is very common that this type of buy-sell agreement is funded with life insurance. A buy-sell agreement could also be used to provide for the scenario on what happens when an owner wants to retire. The agreement could provide that the owner’s share must first be offered to a family member of the owner, who and for what price the retired owner’s share must be offered first before being offered to outsiders, or even the terms on the retired owner’s exit from the business (i.e., owner will provide 6 months notice on owner’s son to take over ownership so as to provide proper transition time).