Preparing for your possible incapacity or death is vital to the survival of your small business. Without proper planning, your business could be disrupted, harming your customers, employees, vendors, and ultimately, your family. For this reason, proactive financial planning, including creating business succession and estate plans, is key. Following are some helpful tips on how to protect your company and minimize the impact of your absence.
Preparing for the Unexpected
As a small business owner, your focus is likely on daily operations and near-term growth. While this is important, looking beyond ongoing activity to what will happen if you cannot stay involved should be on the top of your to-do list. If you become incapacitated or pass away without a plan in place, you will leave your employees and your heirs without clear instructions on how to manage and transition your company in accordance with your wishes — jeopardizing the business you worked so hard to build. The right planning, including consideration of insurance options, can help keep your business running regardless of what happens.
Have the Proper Agreements in Place
If your company has several owners, a buy-sell agreement should be considered. This contract will outline the agreed-upon plan for the business should an owner become incapacitated or pass away. Provisions in the buy-sell agreement will include:
- how the sale price for the business and an owner’s interest are determined and paid,
- whether the remaining owners will have the option or the obligation to buy the incapacitated or deceased member’s interest, and
- whether certain individuals will be allowed to (or be blocked from) participating in the business.
Execute Proper Estate Planning Documents
A properly executed will or trust will allow you to identify who will be in charge of managing and distributing your assets, how you would like them managed, and who will ultimately receive them or benefit from their value.
Although a will can be used to pass on assets at death, creating and funding a trust allows any assets owned under the trust to bypass the probate process, making distribution of assets to heirs faster and more private. It may also reduce the expense of administering your estate. Additionally, a trust can help your loved ones manage your trust assets if you become incapacitated. While you are alive and well, you typically act as the trustee of the trust, so you can manage your business and assets with little change from what you do now. Unlike a will, a trust allows your successor trustee to step in and manage things if you become incapacitated. This avoids court involvement and allows for a smooth transition of trust management, which can be very important if your business is an asset of your trust. It also will facilitate proper continuing care for you in your time of need. While a will can be a great way to start, many business owners are better off with a trust-based estate plan.
Contact MendenFreiman LLP
Having a plan for your business in the event you are unable to stay actively involved is essential to keeping the company going. Our attorneys can explain the many options you have to protect your enterprise so you can focus on what you do best — running your company.
Contact us to get started protecting your business.