Who is the Better Planner for Your Affairs: You or the State?

Planning for succession of a closely held business is a lot like making a will. An individual has the opportunity to make a will which directs how the individual’s final affairs will be handled and property distributed.  If an individual fails to make a will, the state provides a set of rules that provide how the final affairs will be handled and property distributed, but it may not be what that individual would have wanted if the time to make good decisions and implement a will had been taken.

Similarly, the owners of a closely held business have the opportunity to create and implement a plan that will provide for new leadership and ownership of their business. If they fail to do so, the “plan” is chosen for them by the state through the operation of state law.  In most cases, when the owners fail to plan, the result is that their business is sold or liquidated at an inopportune time, when the owners die or otherwise are unable to run the business.  Many business owners have this latter “plan” and they don’t even know it.

What Should a Succession Plan Include?

At a minimum, a good succession plan answers two questions for the owner of a closely held business:

  • How will my business operate without me? and,
  • Who will own and control my business when I give up ownership and control?

In order to begin to answer those questions, it’s very important for the owner to start with an examination of the owner’s goals for the succession plan. The relative importance of a business owner’s goals should guide the decisions which must be made in preparing a successful succession plan.

Some common succession planning goals for business owners are how to:

  • Provide for continuity of the operation of the business;
  • Maximize the value of the business and/or the income produced by the business for the benefit of the owner and the owner’s beneficiaries;
  • Provide a livelihood and a place to work for the owner’s family;
  • Secure the owner’s legacy and/or continue the owner’s mission; and,
  • Provide security for the business’s employees.

In some cases, business owners will even take into account the effect of their succession plan on other related businesses, such as suppliers or vendors to the business and the business’s customers. The right succession plan for one business owner could be very different than one for another owner, depending upon their respective goals.

Read more at: https://www.natlawreview.com/article/closely-held-businesses-you-make-plan-or-plan-will-be-made-you