If you own your own business or partner with others, an important aspect of your estate plan should be what happens to your interest in the business upon your death or if you become incapacitated and can no longer fulfill your daily responsibilities or just wish to retire.  Whether your desire is to pass on your interest to a family member, sell to a co-owner or a third party, having a good business succession plan in place before the need arises will:

  • Provide certainty to you, your family and business associates
  • Make critical decisions that much easier
  • Improve communication among the interested parties
  • Eliminate family disputes

Some of the options to consider are:

  • Buy/Sell Agreements – If you are in business with another person a buy/sell agreement is a good tool for you and your associates to consider. The objective is to preserve your financial interests and provide certainty to as to what happens if one of you die or is no longer able to continue in the business. The agreement is structured to provide that the remaining owners or the business itself purchase your interest from you or your estate. Furthermore, the agreement can call for life insurance to be purchased so that funds are available to acquire your interest.
  • Family Limited Partnership – Establishing a family limited partnership is often used to own family operated businesses as long as the main objective of the partnership has a defined business purpose. In the agreement you can retain control of the business and gift minority interests over time to family members.
  • Installment Sale – Perhaps your goal is to retire and ensure a stream of income rather than receiving a lump sum buyout. Selling your business to either a family member, partner, employee or third party and financing the transaction is often a good way to provide retirement income. The sale can be structured as an outright sale with a fully amortizable note, a private annuity or a self canceling note.

When planning for the disposition of your business many factors must be considered. Some of the areas to be concerned with are federal taxation, state taxation, regulatory compliance, licensing, permitting and your liability for obligations of the business. Confronting these issues up front will make for a much smoother disposition when that time eventually comes.