Business owners often worry about the legacy they may leave when they die. Often, their goal is to preserve the company long after they cease working there. Estate planning is therefore incredibly important for business owners who intend to leave a meaningful legacy.
Particularly when a small business owner wants their immediate family members to take over their ownership interest, careful estate planning is crucial. What considerations do business owners generally need to integrate into a business plan if they want their loved ones to assume ownership of the company?
Separating ownership from leadership
Owner-operators can handle all aspects of business ownership and management, but their family members may not necessarily have the same drive that they do. A business owner may need to arrange for someone else to take over their role operating the company while their loved ones inherit the ownership interests in the company.
Proper succession planning can make a huge difference to ensure the right party has control over the company when one family members inherit the ownership of the organization. They can arrange for the right party to assume their role or provide guidance for selecting their successor.
Ensuring continued business operations
One significant concern when family members inherit a business is the possibility that they may attempt to liquidate the company. Those who do not necessarily have an interest in operating the business might make decisions that undermine the business owner’s intended legacy.
They might put their desire for capital ahead of long-term financial stability. Family members who directly inherit a business could sell the company or dissolve it and sell off its assets. Business owners may want to establish a business trust as a means of ensuring the company continues operating despite the transition in ownership.
Preventing organizational disruptions
Numerous parties could react negatively to the transfer of ownership as part of probate proceedings. Talent within the company might attempt to leave the business out of concern for their job stability. Clients and even vendors may pull away from an organization after transitions in the ownership or leadership.
Preemptively preparing to retain specific contracts and certain talent at a company can go a long way toward easing transitional disruptions. Particularly if someone plans to step down as part of a retirement strategy, they have an opportunity to negotiate before they transition out of their role to keep company operations predictable.
Business owners may need to consider the possibility of estate taxes and other complications as they arrange to transfer both the ownership interest in their business and a leadership role at their company to the next generation. Creating an estate plan that addresses unique business concerns is a smart move for those who want to transfer their interest in a company to their children, grandchildren or other family members.