Serving Waukegan, Libertyville, Lake County, Gurnee & nearby areas of Illinois
Posted: July 19, 2013
Succession planning involves anticipating how you’ll turn your business over to someone else when you retire, become disabled or die unexpectedly. Considerations can be quite different for a family business than they would be for a partnership or closely held corporation.
If your business is a sole proprietorship, you might have more options than if it’s a partnership. Typically, you can hand over control of your sole proprietorship to whomever you like. However, successful planning involves determining if that individual is willing and able to take on the job. You can pass your business through a will or trust when you die. You should consider entering into a buy-sell agreement with the individual you’ve selected, such as a relative or employee, prior to stepping down or becoming disabled.
If your business is a partnership, it’s important to create a buy-sell agreement as part of the formation process. Buy-sell agreements can contractually arrange for your partner or partners to step in and assume full ownership of the business if something should happen to you. Buy-sell agreements can be mandatory, where your partners must buy out your portion of the business from you or your heirs. They can also be optional, where your partners have the first right to purchase your share. If they decline to do that, they can find another buyer. It’s important that the terms of your will or trust are consistent with the agreement. You should also seriously consider purchasing key man life insurance to make sure that your partners will be able to pay for your interest in the business upon your death.
Regardless of the type of business you own, you must consider the tax consequences of the sale of your business. Capital gains tax and estate tax laws change frequently and vary from state to state. You need to enlist an accountant and/or a tax attorney for advice in this regard.
No matter what method you choose to pass on your business, it’s important to review your plan every year or two. The son or daughter you chose to take over might have developed new interests. Heirs may predecease you, employees can quit, and partnerships can develop problems. You can make changes to your plan at any time. It’s usually not final until you become incapacitated or die.
The law surrounding succession planning is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact us.
