Unlike the drafting of a simple will, creating a business succession plan is not just a matter of putting together a single document or even a handful of papers.
Rather, business succession involves a lot of careful thought, because the overall plan has to cover a lot of ground. In that respect, sometimes business succession plans can even include legal documents that many Ohioans may think apply to other areas of the law.
For instance, usually one thinks of forming a limited liability company, or an LLC, as a business decision that a company makes in order to get the most advantageous tax position or to protect itself from legal liability. However, an LLC in the right circumstances is also a good way to hand down a business to the next generation of owners. Some families may even elect to form an LLC even if they do not have a family enterprise.
LLCs, for instance, can allow the current owners of a business to maintain control over operations while gradually handing down their ownership interests to the next generation. By doing so, they can also save on potential liability for the federal gift tax and, assuming it is an issue, the federal estate tax.
For those business owners who are married or planning to be so, a prenuptial agreement may also be an important component of one’s business succession planning. Without such an agreement, a divorce could lead to an ex-spouse receiving a percentage of the other spouse’s interest in a family business, even if he or she to that point had limited involvement in its affairs.
Likewise, if there are children from a prior relationship who are involved in the family business, then some sort of plan or agreement may be critical to clarify that those children, and not their parent or stepparent, get control should the owner pass away unexpectedly.
Because of these considerations and more, many small businesses can benefit from getting an early start on business succession planning. Having a solid plan in place can guard against the uncertainty of the future and give the owners, as well as their family members, some peace of mind.