Small family businesses were once the backbone of the American economy. Children learned trades and/or management skills from helping in the family business and often one of those children would assume control of the business upon the retirement, disability, or death of the patriarch or matriarch of the family. After decades of decline, family businesses are rebounding once again in the United States. The Oklahoma City business succession planning attorneys at Parman & Easterday explain why succession planning is crucial for your family business.
Owning a Family Business
There are often some unique challenges a family business may face that highlight the need to incorporate succession planning in your comprehensive estate plan. Asking yourself the following questions will help illustrate how vitally important it is to plan ahead to ensure the survival and/or success of your family business:
- If an accident puts you out of commission tomorrow, who will take over the immediate day to day operation of your business? Does that person have the legal authority necessary to run the business? Will your employees, business associates, and family members accept your successor’s authority?
- If you utilize a line of credit with vendors or bankers, how will they respond?
- Do you need a succession plan to transfer ownership to family members, a plan to sell to insiders, or a plan to sell to a third party?
- If you become permanently disabled or retire, who will take over your business? Will your family continue to benefit from the business’s success in your absence?
- Will your business go through probate following your death? If so, what will happen to the value of your interest in the business if it is sold? What will the tax implications be for your business? Does the business have sufficient liquid assets to cover any tax debt that might be owed when you die? How will your family get by financially during probate?
- If you plan to pass the business down to the next generation, have you prepared your successor to take over? Have you set up the proper legal and management structure for the business to facilitate the transfer to the next generation?
How Can Business Succession Planning Help?
Exactly what tools, strategies, and documents will be included in your business succession planning component will depend on the details of your business and your plans for its continuation in your absence. For example, if you plan to pass down your interest in the business to your children, you may want to create a Family Limited Partnership (FLP). With an FPL you maintain majority control and day to day management of the company for as long as you wish; however, your successor can also begin to learn the business while you are still around to provide guidance and advice. You are also able to slowly transfer your legal interest in the business to your child(ren) over time that produces some significant tax advantages.
If, on the other hand, you have already established that none of your children wish to take over the business (and you really do need to establish this one way or the other), and you are considering a sale to “insiders” – other employees working in the business, then entering into a buy-sell agreement ensures that your loved ones will be entitled to the benefit of the value of your interest in the business. A buy-sell agreement works best when you have a partner; however, you can enter into one with an uninterested third party. In short, a buy-sell agreement allows you to determine ahead of time what your interest in the business is worth or, in the alternative, provides an agreed-upon method of valuing the business when the time comes. Your partner(s) agrees to purchase your interest in the business should certain events occur. This ensures the continuation of the business and a fair price for the sale of your interest in the business, the proceeds of which will then become part of your estate or will go directly to your loved ones.
Contact Oklahoma City Business Succession Planning Attorneys
For additional information, please join us for an upcoming FREE seminar. If you have questions or concerns about business succession planning for your family business, contact the experienced Oklahoma City business succession planning attorneys at Parman & Easterday by calling 405-843-6100 or 913-385-9400 to schedule your appointment today.
One reason is the lack of planning. On top of handling the emotional loss of a spouse/father/mother, the surviving family members simply don’t know what steps need to be taken to protect the business.
It depends on the legal structure of the business; however, many family businesses end up a part of probate which can take months, even years to complete.
Farms and ranches are often land rich and cash-poor operations, meaning all of the assets of the business are tied up in land, crops, animals, and equipment.