It is very important to begin the conversation with family members and business associates as well as the actual planning for business succession long before it becomes immediately necessary. This is because the process of transitioning a company that was developed with blood, sweat, and tears is an emotional as well as a financial matter. It is important to analyze the situation from the perspective of preserving all that hard work rather than having someone else take over the reins.
In order to effectuate a successful transition, it is necessary to have a clear plan in place in order to transfer assets and distribute the stocks after the person who holds these items has died. The efficiency of the transfer will help to preserve the value of the business. If there is no clear succession plan, there may be power struggles that undermine the strength of the company. These disputes also may prolong the probate process, which could lead to a devaluation in the stock, creating an uncertain future for the business.
One other critical component to address during estate planning surrounding the succession of a business that will continue operating after the death of an equity owner is that there is sufficient liquidity to continue the business during the transitional period. Many times, a person who has not consulted with experienced business and estate attorneys will not consider the various fees and taxes that will drain the resources of the company before the new business leaders are able to generate revenues when they take over control. The death of an equity owner does not mean that the various bills no longer need to be paid, so it important that the estate plan reflects this reality.
There are many aspects that should be addressed as part of succession planning, but some of the minimum details that should be considered are:
- The delegation of authority to successors – this may include the designation of specific responsibilities;
- The designation of individuals who will act in an advisory capacity;
- The use of benefit packages and performance bonuses in order to retain key personnel; and
- The clear framework for those individuals who will perform specific roles, as well as identification of those who will act in a managerial capacity.
Depending on the size of the business, there may be confusion between the personal and business assets of the individual engaging in estate planning. It is critical for small business owners to draw a line between the business and the family in order to ensure the future success of the business.
By designating a succession plan that details the distribution of assets, it is possible to avoid probate, at least for those things that are part of the plan. It also is possible to maximize the tax benefits through the use of a clear succession plan.
A big obstacle to a lot of succession planning surrounds family members and how they will react to the estate distribution. There are times when one person will not get a large share of the estate, but who will have control over the business. It is important that there is open communication prior to the death of the equity holder in order to prevent estate heirs from attacking the succession plan or otherwise acting to hinder the ongoing operation of the business, in direct contravention to the wishes of the decedent.
The Crisp Law Firm, PLLC Will Help Effectuate a Smooth Transition
The use of the estate planning process to create a clear plan for how the business will be be transitioned in order to ensure future success is critical for many people who have a significant equity interest in the business. The skilled and dedicated New Hampshire Estate Planning Attorneys at The Crisp Law Firm, PLLC have the business acumen and estate planning knowledge to develop a successful business succession plan. To schedule an initial consultation with one our skilled Concord Estate Planning Lawyers, call us at (603) 225-5252 now to learn more about your legal options.