Whether you are just starting out or have been running your business for decades, it is important to prepare for the day when you will hand the reins to someone else. If your business is supported by your family, it is natural to assume the transfer process will be simple. However, without a careful plan for business succession, even a simple transfer can be hampered by uncertainty, conflict, crippling delays, and unnecessary costs.
By working with a business succession lawyer now, you can avoid potential risks and future threats to your company and successors if you suddenly become disabled or pass away.
A business succession attorney can help you:
- Prepare for estate tax obligations by equipping you for estate liquidity and ensuring your family has enough money to meet the estate tax cash call.
- Coordinate financial and estate plans to meet all your planning objectives, provide liquidity for estate taxes and business debts, and ensure you have enough cash to fund your goals.
- Draft a business buy-sell agreement (BSA) to plan for a business owner's incapacitation and establish a value for the business that is binding on the IRS for federal estate tax purposes.
- Create a fund to finance your buy-sell agreement to help you to save up funds and implement disability buy-out insurance and life insurance.
Business succession planning takes careful thought. A qualified attorney can walk you through critical questions beyond the obvious issue of choosing a successor to run the business after you. For instance, you may need to consider how to plan for your spouse or your children regardless of their role in the business. Or you may need to take steps to “in-law proof” your business. Have you considered the second-generation transfer of your business?
While the issues and red tape can be confusing, a business succession attorney can address these concerns and many others. Each transfer is different, but a few common questions tend to arise, such as:
Can you inherit a sole proprietorship?
Under most circumstances, there is no distinction between the owner of a sole proprietorship and the business. The business does not exist independent of the owner. Therefore, when the owner passes away, the business does not transfer, although the assets and liabilities of the company will become part of the owner’s estate.
What happens to a business when the owner dies?
The fate of the business after the death of the owner depends on a number of factors including the structure of the business and the provisions in the owner’s will.
- If the business is a sole proprietorship, it cannot be passed on. The owner’s will or the laws of intestate succession determine how assets are distributed.
- If the business was a partnership, the business’s continued existence depends on the partnership agreement. It could be passed on or terminated depending on the terms.
- If the business was incorporated and the owner remained the only shareholder, ownership generally passes to the estate unless another plan is set in place.
- If the deceased was not the only shareholder of the corporation, the person who inherits the shares becomes a part-owner, unless a succession plan provides for other arrangements.
Are buy-sell agreements legally binding?
If properly prepared and executed, buy-sell agreements are legally binding. A buy-and-sell agreement stipulates how a business’s share is reassigned in the event of a partner’s death or departure.
What happens to my business if I die without a will in North Carolina?
Under the intestate succession laws of North Carolina, a business that is not a sole proprietorship passes to the closest heir if the owner dies without a will. The business can continue to operate according to the wishes of the heir.
Protect Your Company’s Future By Working With a Qualified Business Succession Attorney
The attorneys at Salines-Mondello Law Firm, PC can help you safeguard your future, finances, and family. We’ll help you consider all the implications of your business succession or transfer and work closely with you and your successors to provide an effective plan for your needs.
Contact Salines-Mondello Law Firm, PC at (910) 777-5734 to schedule your first, fully confidential consultation.