Entity Exit
Who will succeed you? How will you exit your business? How do you protect yourself and your family during this transition? Will a child take over the business? Will a business partner buy your interest? Is another person or company wanting to buy your company or do you want to buy or merge with another company?
Business succession planning should be considered from the earliest stages of your enterprise. Properly positioning your interests can result in additional profits and savings. You should get really serious about it and review your planning in greater detail 3 to 5 years before your expected retirement. But you really should start planning your exit as soon as you start.
Reasons Why Your Business May ...
- Bankruptcy or other financial difficulties
- Divorce
- Incapacity or death of you, a family member or a key employee
- Lifestyle changes (new baby, moving to Aruba, better business opportunities, sick sibling, spouse or parent, etc.)
- Merger(s) & Acquisitions
- Retirement
- Stalemates with your business partners. Fundamental disagreements make continuing the business almost impossible.
- Substance abuse
Business Aspects
There are many resources to help you manage the business aspects of exit planning. [Be careful though! There are a lot of scams on the internet.] Things like grooming employees, compensation management, accounting management to improve valuations, and so on.
I can help in this area by drafting key man employment agreements, copyrights & trademarks, non-compete agreements, and so on. Some of the advantages include setting a "strike price" well in advance for the departing shareholder’s stock, creating a market for the business interest (which can be extremely difficult in closely held corporations) and ensuring business continuity.
Legal Aspects
More often than not, a small business has a successor in mind. A child, a partner ... someone has already been chosen. It is important that the transfer of your interest (title) be done in a legal and cost effective manner always with an eye on the tax implications of that transfer.
Buy-Sell Agreements are a key tool in this process. Shareholder Agreements and Options to Purchase are similar and play a vital role in proper business planning. Many clients don't want to discuss these matters. These documents are, after all, much like a will. They deal with scenarios most people don't like dealing with. What they don't realize is that these agreements play an important role in their life estate plan as well and can create significant opportunities for them and their families.
Triggering events are spelled out, the persons that may purchase the departing shareholder’s stock are identified, how the departing shareholder’s stock will be valued is detailed, and how the buyout will be funded is identified in advance.
Funding is of course an important consideration. Most business owners couple their Buy-Sell or Shareholder Agreements with some form of insurance policy. Other options include sinking funds, notes, and installment payments. I can help you with the appropriate documents.
Larger businesses require more assistance. In these matters it is rarely a single person. Rather it is another company that wishes to either merge with your company, acquire it, or enter into a joint venture agreement. Due diligence reviews of pending lawsuits, tax exposure, adequacy of corporate records, titles, EEOC & other regulatory compliance, is only a starting point. Drafting the actual transfer documents often include real estate deeds, transfer of insurance policies, vehicle licenses, leases, and so on.
Call me!