Like any organization, a business needs its leader. If a business is a ship, a business leader turns the wheel to steer it where it needs to go. When a business owner or CEO unexpectedly dies, however, it is like a ship’s wheel losing its connection to the rudder: overnight, or even in an instant, a company can get blown off course if the transition from one leader to the next is unclear, and the family ends up in Probate Court before they can inherit the business. Worse yet, when business obligations, such as rents, leases, loans, employee wages, State and Federal Taxes, etc., go unpaid, the business can quickly face a complete demise, the owner’s remaining property may be liable for unpaid taxes/obligations, and the estate can end up in court fighting off the business’ creditors (including the IRS and State taxing authorities).
For that reason, a business succession plan is a very important tool that can minimize the adverse, even fatal, impact of a business leader’s sudden passing.
Why a Business Succession Plan Is Important
A business succession plan can achieve stability in a company when it is needed the most, and provide for a seamless transition of the business to the owner's heirs.
When an owner suddenly dies, there may be a key employee holding down the fort for a short while, but they may not have the acumen or competency the business needs during a transition period, which could take months if the business has to go through Probate. Moreover, they likely don’t have signing authority over big decisions concerning the business, such as contracts, tax returns, etc. - which only the owner possessed.
A business succession plan can provide clarity on the business’ chain of command and who should lead if the owner or CEO is unable to do so. Without a succession plan in place, often the deceased owner's heirs need to petition the Court to have someone appointed in charge of the business/Estate, and granted signing authority on behalf of the business to continue its operations This includes singing contracts, collecting receivables, accessing the Business Bank Accounts, processing Payroll, filing tax returns, etc. Going to court to have someone appointed to be in charge takes many months, during which time irreparable harm can occur to the business operations: employees will likely leave if no payroll can be processed, vendors will cut ties when contracts remain unsigned or their invoices go unpaid, and the business may default on its leases if rental dues cannot be remitted. If State and Federal Tax returns go unprepared, unsigned and unfiled, destructive tax consequences can follow – such as snowballing penalties and interest, on top of unpaid taxes. An interruption of this nature may be the death of the business itself, and can be devastating to the owner’s family.
A Plan Can Manage Egos & Communication
Emotions can run high in such a situation, especially if the former leader’s family members, business partners, or trusted employees are involved.
A coherent business succession plan can help to facilitate communications among these parties as to who is in charge, as well as provide direction as to who has the operational and signing authority to carry on the day-to-day business tasks seamlessly. Not only can this offer the cohesion a company needs during a difficult time, but it can also help to manage the emotions of those who would otherwise be fighting to take control and ownership of the business.
A Plan Can Achieve Your Business Goals
A business succession plan can make sure your company can achieve the long-term business goals you dreamed of accomplishing, rather than crumbling or coming apart as a result of the owner's sudden death or incapacity. To ensure your business operation can continue uninterrupted, you would want to work with an Estate Planning attorney to set up a Trust and assign your business to your Trust. You may appoint a Special Trustee who is solely responsible for taking over your business if you die. And, in the event of incapacity, your chosen Power of Attorney can step in to conduct the day-to-day operations of your company. Last but not least, you will designate who inherits the business, or provide guidance on the sale of the business, if a sale is desired.
A Plan Can Solidify Your Legacy
When you plan for your company’s succession, you are investing valuable time in making sure your business will go on and continue to prosper without you, and transition in the best of hands following your passing. Business succession planning can even be considered altruistic. By planning for what happens to your business when you are gone, you demonstrate how you value your employees and clients, and ensure they will be treated with the same level of respect, care and responsibility by your selected, like-minded successor, who shares the same values as yours. Most importantly, by carefully thinking through Who inherits your company upon your death, you can truly leave a legacy - knowing your company remains in good hands. Setting up a Trust to address these issues will ensure a seamless transition without the Courts getting involved in the succession (or demise) of your business.
Planning for the transition of your business is the responsible thing to do - for your Business, Employees, Clients, Vendors, and for your Family.
Do You Need Help with Your Business Succession Plan?
If you own a Business, you should consider setting up a business succession plan for your company. Reach out to the Law Offices of Maria N. Jonsson, PC for legal support with planning for your business. We can assist with establishing a sensible business succession plan that will allow your company to endure a business owner’s death, retirement, or any other vacancy.
For more information, please contact the Law Offices of Maria N. Jonsson, PC