Are you thinking about hiring a business lawyer for passing on the family business?
A 2021 PwC family business survey found that although 96% of family-owned U.S. businesses expect growth in 2022, only 34% have a “robust, documented and communicated succession plan in place.”
This number should be higher!
If you’re one of those without an updated and legally sound succession plan, you need legal support to ensure it gets done right.
Here are some points to consider for those thinking of passing on the family business in the next several years.
Passing on the Family Business: Finding Peace of Mind
Are you stressed out about passing on the family business or set to inherit one?
Family businesses can carry a lot of weight for both current and future owners.
That’s why any business owner should, as early as possible, establish some key foundations that will help in case the business needs to be passed along earlier than expected.
Here are some key points to remember as you move towards this important transition.
- Be patient. The entire succession process is rarely smooth, and even less so if siblings tend to clash or are already in conflict about inheritance.A trusted business lawyer can help you to establish your preferences, mitigate conflicts and communicate challenging details.
- Acknowledge generational differences. When it comes to management style and the current business climate, owners of family businesses shouldn’t underestimate the value of being open to new management approaches and styles.
- Practice due diligence. Ensure all assets, debts, and tax issues are detailed, updated regularly, and incorporated into a legally sound succession plan.
If there is no one to inherit the business, or the children don’t want it, a challenge may be selling the business to someone you trust.
Ensure you have clear acceptance, interest, and support from the people in line to inherit your business.
You can also make sure your lawyer is there to help them understand how to sell the business should they choose to do so.
Your Family Business and Estate Planning
Financial advisors and legal representatives are typically well-versed in estate planning, but at the same time, this can be a huge job and can even lead to family conflict.
Your financial manager, accountant, and lawyer will make sure that essential considerations have to do with tax and equity in your business when it comes to estate planning.
If you are passing on the family business, be sure to have a knowledgeable representative at your side who can explain clearly how your estate plan ties into your business succession plan.
Your Business Succession Plan
Some entrepreneurs with small family businesses may have neglected to put a legal plan in place throughout, or their business model and succession plan may be outdated.
Even if you run a small organization or a non-profit, it’s essential to review your business plan and set up a formal succession plan if you pass on the family business.
Not doing so can harm your decedent’s financial and emotional wellness.
A succession plan will include details such as:
- When the owner will officially retire
- What happens in the case of unexpected death or disability
- What happens if the business collapses before inheritance
- Details about taxation
- Details about estate planning
- Details about ownership transfer
- Costs associated with succession
- How to finance the business transfer
- An up-to-date valuation of the business
- Timeline of personnel changes
- Project management strategies
- Stock and equity details
- Growth projection
- Insurance details
- Operational details (processes, policies, product information, etc.)
- Employment policies
- IT information
- Marketing plan
The plan should also detail the process of how the transition will be shred and advertised both internally and to the public.
Everyone involved in the financial, legal, and (high-level) management of a business would be privy to the business succession plan.
Determine Your Ideal Business Structure at the Time of Succession
Businesses will grow and change no matter what, and sometimes there are unexpected events that can seriously impact the business, such as the COVID-19 pandemic.
If you are passing on the family business and it is currently experiencing a lot of growth, you may choose to incorporate it before any transfer of ownership occurs.
The best course of action will depend on several things, including:
- Business growth
- Level of liability needed
- Overall financial picture and budget
- Expected future growth
- Tax structure
- Ownership structure
We want to see your business flourish now and into the future. Learn more about choosing a business structure for your company.
Hire a CO Business Attorney Today
Having the right team on your side can make or break the success of a family business transfer.
A business attorney will help you with activities covering day-to-day business operations and more significant issues, including crisis management, updating contracts, taxes and licensing, and more.
Get familiar with your options as early as possible, and get legal counsel to protect and guide you.
If you’re looking for legal counsel in Colorado, call us or schedule an appointment today.
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