Planning for the management and transfer of a business in the event of an owner’s incapacity or death is an important and often overlooked part of the estate planning process. Managing someone else’s business can be messy without direction. Business owners should incorporate a business plan into their estate plan to ensure the smooth transition of the business upon incapacity death. A smooth transition helps the business maintain its value and remain operational while an estate is probated or trust administered.
Business succession planning is especially important when more than one person owns the business. Owners should have a conversation with their partners about transition issues upon incapacity or death. A shareholder agreement, or a buy-sell agreement in the case of a non-corporate business, is a contract between the owners that addresses potential future conflicts. This lays the groundwork for a solid path in the future. These agreements typically address ability to sell equity in the business or transfer ownership interest to a non-owner, buyout rights, business valuation in the event of a buyout, and the coordination of who will own the business and who will manage the business in the future. The funds for a purchase by co-owners can be provided through life insurance policies.
Business succession planning is important no matter how big or small the business. Individual small business owners should have a power of attorney that would allow someone else to take care of the business in the event of illness or incapacity. It is important to stay organized and keep good records so that someone else can keep the business up and running.
Business owners tend to focus on day-to-day needs; however, if you want to take care of business even after you’re gone, plan and document the direction you want your family to take so that they can continue to enjoy the fruits of your labor.
Ashley Naramore is an attorney in Hot Springs, Arkansas. She serves clients throughout Arkansas and is available for your estate planning needs.