Business Owners, Listen Up: 4 Business Succession Tips to Implement Now
Editor’s Note: Paul Yokabitus from StephensonLaw, LLP in Cary contributed to this article.
Cary, NC – Many business owners are just too busy with building a successful business that they fail to create an exit plan for retirement or their unexpected death. Often the death of an owner can be crippling for a business, especially small businesses with limited remaining employees. Worry not. Here are four tips for creating a successful business succession plan that you can implement now.
1. Create an Estate Plan
Without a proper estate plan, the business owner’s estate, including the company interest, will have to go through probate. And in North Carolina, the executor or administrator will have to petition the Clerk of Court for the authority to continue to run the company. Only the economic interest in the owner’s shares will pass to his or her family. During the probate process, the company will have to be appraised and listed on the decedent owner’s initial inventory of assets filed with the Clerk – which is a public document, accessible by anyone. Having an estate plan to reduce the burden on your loved ones during this time or help you avoid probate altogether.
2. Create a Buy-Sell Agreement
A “Buy-Sell Agreement” can be established between the business owner and a third-party – perhaps an employee or partner who is interested in owning the business themselves. Generally the agreement will spell out the terms of a buy-out in the event that the owner retires or dies. This sort of agreement is often funded with life insurance but it should be updated frequently to account for the changing value of business.
3. Plan for Disability and Incapacity
Creating a valid power of attorney can allow someone to stand in your shoes for financial and transactional purposes should you become disabled or incapacitated. For solopreneurs, if you’re unable to make a decision, your company is unable to run. The power of attorney would allow a third party (a friend or family member, most likely) to vote the business owner’s shares so that issues do not arise and opportunities are not missed.
4. Close the Loop
Keep all of your financial team members in the loop – including CPAs, financial advisors, insurance agents and attorneys – to make sure your important policies and accounts will do what you intend for them to do. Also, to ensure that the correct person is designated as a beneficiary and that the premiums are paid by the correct person/entity when they are due.
Failing to plan is planning to fail. Get your affairs in order before it’s too late.
Paul Yokabitus is a estate planning and business law attorney at StephensonLaw, LLP. Photos from Paul Yokabitus and Lingo.
