Are you starting a new business? Or are you already a business owner? If you haven't formed a legal business entity, you have left your personal assets vulnerable to your business liabilities and potentially even lawsuits.
Business entities such as corporations and limited liability companies (LLCs), offer certain protections from liability and can keep your personal assets out of reach in the event of a lawsuit or unpaid business debts. We can advise you on which type of business entity is right for you and your business! We can then create that business entity for you, including the drafting of all necessary documents and filing with the proper governmental authorities. Every business is different, and we will evaluate yours on an individual basis.
Beyond just forming the entity, or evaluating your current structure, we will also advise you on:
What happens to your business if your business partner becomes incapacitated or passes away unexpectedly? What happens to their share of the company? What happens if your business partner no longer wants to participate in the business but you do not agree on how to determine the company value? What happens to the company itself? Even if the partners had agreed on a buyout, where does the money for the buyout come from?
If your company has multiple partners, then your business entity documents are NOT complete without a Buy/Sell Agreement.
A Buy/Sell Agreement is a written contract between owners of a company where it is explicitly stated as to what happens when one of the partners passes away, becomes incapacitated, or even when they simply want to exit the business. It can state that the deceased owner's share goes to his family via stock ownership interests, and/or that his family has the right to step into his shoes and be a partner in the business. Or it may specify that the percentage ownership of the deceased person passes to the surviving partner, but that the surviving partner is then to monetarily compensate the deceased owner's family. But how is that to be decided? Well, the terms are outlined in the Buy/Sell Agreement, including methods for an appraisal if there is a dispute about the company's value. Very often these Buy/Sell agreements are funded with life insurance.
In the case of an owner passing away, and the surviving owner or owners are taking over the business, with a payout to the deceased's family, where does the money come from? If the company does not have the cash to pay for a buyout, which most do not, then life insurance can be used to fund the buyout.
Don't make the mistake of entering into a partnership without a Buy/Sell Agreement, and a plan for funding that agreement. We've seen it many, many times when one partner passes away and it turns into a dispute and even litigation between the deceased owner's family and the surviving partner. That's because in these cases, the partners did not put their wishes in writing. They did not discuss, agree upon, and put a succession plan in writing, and they did not put together an estate plan that would deal with these issues. That leaves the deceased person's beneficiaries and the surviving partner left to argue about what is supposed to happen, what's fair, and what represents adequate compensation.
A Buy/Sell Agreement can easily be modified over time so that is is always the right fit for the partners. That's why the relationship with an estate planner has to be an ongoing thing, and not a one-shot deal. The estate planner should be there to implement changes as the partners' lives change.
We have noticed that business owners are often so busy that they can neglect their own planning. They spend so much time worrying about others and the day-to-day of running the business that they put their own personal needs, and sometimes their family's needs as well, on the back burner.
Succession planning can change over time, and be modified as the partners' age, or as their beneficiary's age. For example, planning for owners with children who are under 18 should be vastly different from planning for owners who have adult children. Adult children might already be part of the business, and it could make sense for them to step into their parent's shoes and take over as a partner. Or the owner's children, whether adults or not, may have no interest in being part of the business and are simply looking for compensation as part of their parent's estate.