April 13th, 2021
Succession Planning for Your Business
Author: Karen N. Shapiro
What is the endgame for your business? Do you want to sell it to a third party or transition it to employees or family members – or something else? Whatever your goal, a successful business transition starts with an effective plan and it is never too early to develop one.
If your objective is to sell your business to a third party, there are many actions you can take now to increase the value of your business and make it more attractive to potential buyers. Such steps may include entering into agreements with key employees to both incentivize them in a way that is aligned with your broader objectives and restrict them from taking actions that would be detrimental to the company such as disclosing confidential information or competing with the business. Other steps may include updating governing documents, formalizing business agreements or processes, and addressing areas of non-compliance.
If you wish to transition ownership of your business to employees, there are many techniques available. For example, you may use stock options to grant employees the right to buy a certain number of shares of stock at a fixed price in the future. There are also various types of equity plans that may be used to grant or sell equity to employees on certain terms. Vesting schedules may be used in both plans.
Proper succession planning involves planning not just for the desired events, but also for the potential undesirable events that may arise such as a death, disability, departure, and dispute. With good planning and proper agreements, you can reduce the impact of these unfortunate events on your business.
It is essential that the succession plan of the business and the estate plan of the business owners work in concert. Frequently, the business is one of the largest assets of the business owner. For this reason, it is important to consider both your business and personal situation as you evaluate available tax savings strategies and estate planning techniques appropriate for you.
With a little time and thoughtful design, the business attorneys at Stein Sperling can help develop a plan to protect, grow and transition your business.