Princeton Business Succession Lawyer
Princeton Business Succession Lawyer
Proper business succession planning allows entrepreneurs and small business owners to protect the value of their company when they retire or die. Succession planning isn’t easy, and it involves much more than leaving business assets to loved ones in a will. Whether you are focused on helping your children continue to run a business or want to consider selling to maximize your investment, contact Scott Counsel, P.C. today. Our Princeton business succession lawyer can help advise you on which steps to take to accomplish your business goals.
What is Business Succession Planning?
Businesses are unlike other assets that you own. When you die, your children and other loved ones will probably inherit cash, investment accounts, and real estate. But few of us care what they do with these assets. They can use them however they want.
A business is different. For one, your family’s entire income might come from your business, and you want your surviving spouse and children to continue to enjoy that income. That means your business must continue to thrive after you die.
With the right business succession plan, you can decide who will inherit your share of a business. You can also set things up to protect the new owners and allow the business to be successful.
What Happens if You Don’t Engage in Succession Planning?
Many business owners are pressed for time and don’t see the reason for this type of plan. But consider the following situations:
- You retire. Do you know who will run the business when you are done? Many retirees are counting on business income to fund their retirement. But once you give up control, you assume the risk that the new management will continue to run the business properly.
- You die. If you die with a will, it might distribute your business evenly between your children. But what happens if only one child has worked in the business, while the others have no idea what is being done? Disputes could break out between co-owners.
- You divorce. Under New Jersey law, most assets you obtained while married are considered marital and your spouse gets a fair share of them. This means your ex-husband or wife could be a part-owner of a business they never spent a day working in.
Business succession planning helps you think through what will happen in those events. The sad reality is that many businesses will not survive in the future once the original owner departs. Statistics show that only around 30% of family businesses survive into the second generation and a mere 12% are still running in the third generation.
Key Steps in Business Succession Planning
Planning for how to pass your business on to the future generation is a complicated process. No two business succession plans are the same, and a first step is to consider your goals as the business owner-manager:
- Do you want to sell someday?
- Do you want to keep the business in the family and generate income for retirement?
- Do you have a specific individual you want to succeed as a manager?
- Do you want multiple people to be passive owners but not have day-to-day decision-making responsibilities?
Only when you begin answering these questions can you begin to effectively engage in succession planning. For example, you might want to leave the business equally to three children as co-owners but have only one child run the business. To set that up, you might need to change the business entity, establish buy-sell agreements, and issue stock. If you don’t take any of these steps, your three children could have an equal say in how a business runs—and potentially cause it to fall into ruin.
Other business owners might want to sell. For example, you might own small dental practice and none of your children have the education or skills to work as a dentist. In this case, selling is the best way to maximize the value of your investment. You will need to properly value the business and create certain documents for a smooth sale. Selling a business is always a possibility when it comes to business succession planning, and we encourage all clients to consider this possibility.
How Estate Planning & Business Succession Planning Interact
Business succession planning overlaps with estate planning in key ways. If you own a business, you can’t create a proper estate plan without engaging in succession planning.
Some important issues involve:
- Taxation. Many clients want to lower their taxes, especially estate taxes. There are different strategies for doing this, such as making lifetime gifts of business assets. We work with clients to realize tax savings.
- Estate division. One common concern involves dividing an estate equally between children when many assets pass outside probate, including business assets that might fluctuate in value. An attorney can comprehensively evaluate your estate to identify the best way to divide it.
- Retirement planning. Engaged retirement planning must consider your relationship to the business. If you maintain an ownership stake, you should consider the tax consequences.
- Income generation for beneficiaries. We can help you purchase life insurance to provide immediate income to a loved one, such as a spouse, especially if he or she will not be involved in the business or own any of its assets.
If you try to create a succession plan without an estate plan—or vice versa—you could throw an estate plan into chaos.
Communication is Key with Business Succession Planning
A good reason to start a succession plan right now is to communicate with other stakeholders, such as directors, employees, and family members. A succession plan should be clear and help orient everyone moving forward as to certain business decisions, such as expansion or training. For example, by creating a succession plan, you can begin onboarding the future manager so that he or she can hit the ground running when you retire or pass away.
We realize that your future goals might change. Fortunately, any succession plan can change as well as needed.
Contact our Princeton Business Succession Lawyer Today
You have worked hard to grow your business. Don’t lose out on a chance to preserve as much value as you can by creating a succession plan. Call (856) 281-3131 today to schedule a confidential consultation.
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