Business Succession Planning
The demands of running a family business or any closely-held company can be overwhelming. Often, those demands can consume so much time that there is little opportunity to think about succession planning. Therefore, it is not surprising that less than one-third of family-owned businesses survive into the second generation. At the same time, it has been estimated that over 80% of family businesses have no succession plan.
For the owner of a private, closely-held company, a business succession plan is an essential element to the proper planning of what you have worked so hard to develop and maintain over the years. We are experienced at working with our clients and their accountants and financial advisors in this area
At Colby&Thornes, we will develop a strategic plan customized to your circumstances, needs, and goals for the effective succession of your business. Family wealth transfer techniques, corporate and partnership structuring, and business transition techniques are just some of the tools we employ to place our clients in a position where they have the peace of mind that comes with having an intelligent transition plan in place. Call us to talk about the future of your business.
Experience Developing Effective Business Succession Strategies
A successful strategy for the future of your business involves a multi-faceted approach dealing with such issues as ownership, management, and leadership. But it must also address taxes, proper entity formation, and a host of related matters, all of which, if performed properly, can help to assure the orderly and effective transition of your business upon retirement, disability or death. Potential problems can be a function of technical mistakes, planning without taking all relevant factors into consideration, leaving a business to a surviving spouse or children who have had no prior involvement in the company, and difficulties relating to the differences of your children and equitably taking these factors into account. Failure to create the right plan (or failure to have a plan at all) can lead to the forced sale of the business, diminution of value of the business, disputes over control, a lower valuation of the business, and unnecessary and excessive taxes.
Entity Formation
One of the many issues to be addressed when developing a succession plan is the best form of business entity for your situation. Tax considerations and other factors will affect whether a corporation, a limited liability company (LLC), a family limited partnership (FLP), or some other structure will provide the means to achieve your goals. Our firm will assist you in choosing the appropriate entity structure for your circumstances, and forming the entity or entities on your behalf.
LLC’s, Subchapter S corporations, and Family Limited Partnerships in Estate Planning
A question that often arises in small businesses is whether an LLC or a family limited partnership (FLP) is the appropriate entity. If you create a corporation, do you make a Subchapter S election? How about a Subchapter S election with an LLC? An LLC as well as a corporation with a Subchapter S election are both pass-through entities that avoid the burden of double taxation found in C corporations. On the other hand, a FLP is a form of partnership (limited) that has both general and limited partners (of family members) and has many estate tax savings attributes, and gifting techniques, as well as providing certain creditor protections to its limited partners that the other entities do not provide. Each of these entities serves different needs, has different benefits and contains different drawbacks or limitations depending on your needs, goals and circumstances.
Tools and Strategies for Succession Planning
There are numerous questions that need to be addressed to create a business succession plan that makes sense. They include:
- Identifying the goals of the current business owner(s).
- Identifying the goals of other stakeholders. These may include family members, non-family insiders, managers and employees.
- Asset protection.
- Identifying who will succeed to management.
- Identifying who will be the future owners on your death.
- The FMV of the business and the estate/income tax consequences of the plan.
- Strategies to keep the business from liquidation by the family members (if desirable).
- Buy-sell agreements with existing business partners.
- Gifts of shares in the business to family members to reduce estate taxes but maintain control by present owners.
- Sale of the business, to management, employees or outsiders on your death.
These are serious issues that can have serious financial consequences. They need to be dealt with so that your business is ready for the next generation.
Business Succession Lawyers in Scottsdale, AZ
With so much as stake, it pays to have attorneys at your side who are experienced in providing solutions to business succession issues. The estate planning attorneys at Colby&Thornes in Scottsdale, AZ can assist you in setting your goals. We will then proceed to provide the legal framework to make sure that all relevant subjects are covered, and that your wishes are carried out with a minimum of disruption and taxes. Call us today to schedule an appointment about the future of your business.
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