Business succession planning is not something many business owners like to think about. There are probably a lot of reasons for this, among which are the fact that a lot of variables must be considered when planning how to ensure the successful transition of a business when a partner leaves, as well as the fact that many business owners don’t like to think about not being around to ensure the ongoing success of their business.
Whatever challenges a business owner may have in approaching succession planning, that it must be done to ensure the success of a business is something experts agree upon. This is especially true for small businesses. There are a variety of strategies and tools that can be used to establish a sound succession plan, and these will vary according to the type of business, the people involved in the business, and the unique circumstances the business owners bring to the table.
One particularly useful tool is the buy-sell agreement, which is a contract businesses use to determine how to transfer an owner’s business share or interest upon the owner’s departure from the business, retirement, disability, or death. Buy-sell agreements are often used by sole proprietors and partnerships, but they are also used for closely-held corporations and LLCs. Buy-sell agreements most often deal with stock, but can address other business interest as well.
The terms of buy-sell agreements can vary according to the needs and desires of the business and the owners, and it is important to work with an experienced attorney to come up with an appropriate plan and to set it down in a clear and enforceable contract. We’ll continue looking at this topic in our next post.