The short term and day to day issues of your business likely keep you busy, but it is essential to begin to understand what the future of your business will look like when you are no longer able or willing to run it. Your business is important to your community both for the employment it offers and for the products and services it offers consumers. It is important to ensure that your business’ legacy is protected and that your company can still be there for the people it matters to.
By working with a Bloomington business succession planning lawyer, you could take steps to plan the operation of your business after you are no longer in charge. Whether you have general questions, plan on retiring soon, or wish to dispute the succession of a business, a local business lawyer could be the legal advocate you need to protect your entrepreneurial legacy.
Basics of Business Succession
Business succession and estate planning are often deeply intertwined. However, a person’s private estate and their business entity are wholly different and have distinct legal requirements. Instead, business owners should take care to create a separate plan for their business and a dedicated attorney may be able to help create a resilient plan.
Key Questions for a Business Succession Plan
Who will Succeed?
Often the first consideration in any business succession plan is identifying who will take over the helm of the business. A successor is usually already involved in the business, but there may also be more than one person vying to take over. Unlike a personal estate or simple sole-proprietorships, if the company is a corporation, there must also be considerations about the welfare of the shareholders when appointing a new leader. The impact on a business can be lasting, so this decision must be made with all possible care.
Worth of Business?
After a successor has been chosen, a business must then be evaluated to determine how much it is worth. Minnesota uses the “fair market value” standard for determining the value of a business. Minnesota courts have specified an eight-factor test including factors such as the economic outlook of the business, potential earnings, and the nature and history of the business. Outside of a court setting, a certified public accountant (CPA) will typically weigh similar factors to determine what a business is worth.
How Do Businesses Transfer?
A good succession plan for a business in Bloomington will set forth the mechanism to transfer the company from the current owner to the successor. There are a variety of options with benefits and drawbacks.
- Purchase Agreements: Likely the most straight forward, a purchase agreement is a transaction between the owner and successor wherein the successor pays the owner for the business. Typically, these agreements specify the price, what assets of the business are being sold, and a non-compete agreement signed by the seller. This mechanism works best when the seller is a sole proprietor, as additional parties complicate the sale.
- Life Insurance Policies: In this mechanism, a business where two or more partners/shareholders purchase life insurance policies payable to the other members of the business. Upon death, the survivor member will use the proceeds from the life insurance policy to buy out the deceased partner’s share.
Hire a Bloomington Business Succession Planning Lawyer Today
You have put your blood, sweat, and tears into your business and will continue to build your company moving forward, but it’s never too soon to think about what will happen to the business once you are no longer able or willing to operate it. Contact a Bloomington business succession planning lawyer to ensure your hard work does not disappear when you are gone.