Businesses rise and fall based on who is at the helm. If the owner driving the business dies unexpectedly or becomes otherwise unable to fulfill his or her responsibilities, the establishment usually suffers because there was no plan in place to find an equally effective replacement or for ownership to pass from one set of hands to another. A well-crafted and thoughtful succession plan may be the key to the survival of business through the chaos of transition. Regardless of the size of the business, a succession plan that fits each establishment’s unique identity and business model can help a business thrive and mitigate potential losses when the unexpected takes place.
You should consult with an experienced counsel if you own business and want to ensure its continued success by creating a tailor-made succession plan. The Law Office of Richard J. Arendt has been serving clients in the greater Chicagoland area for over 38 years and can provide you with seasoned legal advice regarding the range of options available to you for business succession planning.
Closely Held Small Businesses
Closely held small businesses are unique establishments that are usually highly reflective of their owners and are, more often than not, family-owned institutions that are greatly loved by the communities they serve. However, one of the biggest reasons they fail is the lack of an orderly process by which ownership and management are transferred to the next generation in a tax-effective manner. Thus, closely held small businesses often don’t outlive their original owners and survive an unexpected transition. Small business owners fail to engage in succession planning for several reasons:
- Refusal to acknowledge the possibility that they will not always be around or able to drive their businesses;
- They feel that they have far more burning issues to take care of than prospective planning;
- They believe that either key employees will always be there to handle future control of the business or that their children who are currently active in the business will always want them to be in charge;
- Failure to recognize the serious implications of unplanned business successions to their overall estate plans, including estate tax issues;
Therefore, a well-rounded and thoughtfully considered succession plan often involves the business owner’s estate plan, the forward-looking strategic plan of the business, and the family’s financial plan if it is family-owned.
Estate Planning and Business Succession Planning
A business succession plan often begins with the hardest questions that the owner should consider regarding his or her future. These questions include:
- What is the owner’s current role and what does the owner see his or her role in the future?
- How much income does the owner desire from the business in the future and for how long?
- Does the owner have enough retirement income outside of the business?
- How long does the owner want to maintain control or stay actively involved in the business?
If the business is family-owned, then additional considerations have to be made concerning familial relationships. Different businesses have varied ways of sharing business information with family members. They also employ different ways of compensating those family members who are actively involved in the business. Issues of inheritance and ownership or management become readily apparent, such as who among the family members will inherit the business. Who will be responsible for the ownership and management of the business?
Succession planning allows owners to consider these issues along with the business issues regarding future leadership and ownership and distribution of earnings to owners. Planning will help owners identify key family members who may be prepared to take over the business once the appropriate time comes, and for appropriate measures to be attained before certain family members may take management roles. It also allows owners to consider whether a change in business structure is advantageous for tax purposes, governance issues with shareholders and boards, and the procedures for the execution of transfer. Finally, if the owner is unsure whether retention of the business within the family or sale to outside entities makes more sense for the estate’s future, a succession plan may also set forth conditions for when and how a sale will take place, or allow the family to retain ownership with outside management.
If you have a business, and you want to create a succession plan that ensures your business thrives in the future while preserving your estate’s financial security, the Law Office of Richard J. Arendt can help. Dedicated to providing expert counsel in the greater Chicagoland area, including Boone, Cook, Du Page, Kane, McHenry, Lake, and Will counties, Richard J. Arendt has decades of experience helping business owners create tailor-made succession plans. You may call us to schedule an initial consultation at (312) 642-9606.