Mom-and-pop stores and restaurants have been the foundation of the United States since the country’s origin. Many Americans pride themselves on their work and ability to support their families, with additional fulfillment given to those who do this by running their own business. In the best-case scenarios, family businesses will be passed down from generation to generation. While it may seem straightforward to hand your business off to one of your children, you should still have a plan set in place so that things transition smoothly and your business remains intact. This is known as a business succession plan, and this important legal document can be created with the help of an experienced business law attorney.
Why Should I Have a Succession Plan?
Whether you are handing over ownership of your business or adding a partner into the mix, there are a number of reasons why a business succession plan can be beneficial. The benefits that come from a business succession plan typically present themselves upon the owner’s death, smoothing the transition period of transferring ownership. The legal agreement allows you to determine an agreeable price for your business and avoid a business valuation being performed upon your death, or sets the parameters for determining how the value will be determined at death or retirement from the business and how the amount will be paid. Life insurance may be coupled as part of the plan. This allows for the full policy benefits from the life insurance to be immediately accessible to pay for the deceased owner’s portion of the business. This will help protect the business from being sold as a way to cover the deceased owner’s interest costs.
What Should I Consider While Making My Plan?
The formation of a succession plan is all about protecting your business for generations to come. With that being said, you should first consider what your goals are for your business in the future. Would you like the ownership to remain within the family or would you consider outside ownership? Do you want your business to grow or remain in its current state? Questions such as these can help you determine what you want for your business and who you think would be the best person to achieve that goal. You can also include how you would like decisions to be made for the business. As is the case with most families, it is highly unlikely that everyone involved will agree on every decision. If you think it is necessary, you may establish a method of dispute resolution in the succession plan to be used if they are struggling to come to a common consensus.
Within your succession plan, you will want to identify your successors. You can specify their roles in the business and whether or not you would like them to be active or not. You may also include a transition plan. If the business is going to be purchased, you may consider financing from an outside party or self-financing with the assistance of the retiring owners. After finalizing the succession plan, you may include a timeline for the implementation of the legal document.
Contact a Naperville, IL Business Lawyer for Help
For many entrepreneurs, their business becomes like a child to them — they have helped it grow over the years and do not want to see their hard work fall flat. Unfortunately, business ownership must change over the years, sometimes from one family member to the next, and occasionally, it is sold to an outside party. At The Gierach Law Firm, LLC, we work tirelessly to help you protect your livelihood and hard-earned success. With over 30 years of experience in business law and estate planning, Attorney Denice Gierach knows the best practices to transition your business from one owner to the next while maintaining your business’ reputation. For help creating a business succession plan, call our qualified Illinois business attorneys either at our Naperville office at 630-756-1160 or our Hoffman Estates office at 847-519-0505.