When creating a business plan, succession planning should always be incorporated. The COVID-19 pandemic demonstrated the importance of planning for unexpected events.
Death, divorce, disability, or retirement. These are all circumstances that owners of a small business may experience. When any of these occur, the business owners have three choices: sell, liquidate, or continue. Failure to plan for these events risks the loss of the business or unwanted partners. These events can be addressed through either the business’ operating agreement or a buy-sell agreement between owners. If the business is to be sold or liquidated, then this can be stated along with the terms and conditions under which the sale or liquidation will be carried out. If the business is to be continued, then provisions should be made to buy out the affected owner’s interest. Properly structured, a buy-sell agreement will help fix the value of a withdrawing owner’s interest. More importantly, such provisions guarantee control of the business without interference from outside parties. Ideally, these issues are also considered in the context of an overall estate plan that ensures an owners family is protected.
Failure to plan for the succession of your business increases the likelihood of costly disputes. In general, operating agreements or corporate bylaws are written agreements governing owners’ rights and obligations involving all aspects of their involvement in the business. Now is the time to have these agreements prepared or modified to ensure they appropriately address unforeseen circumstances.
Call Bruza Law, (734) 335-7695 for an initial no fee consultation.