If you become suddenly incapacitated and unable to manage your business, could daily operations continue in your absence? Business owners of any age, but especially those nearing retirement, should have a business succession plan in place. Essentially, a succession plan serves a roadmap for the survival of your business, allowing you to pass along ownership and operational responsibilities to a successor.
Options for transferring ownership
When transferring ownership of a business, there are several commonly used succession vehicles. The right choice for your business will depend on the nature of your organization, your chosen successor and tax implications.
- Buy-sell agreements: A buy-sell agreement serves as a contract to buy and sell the business interests of a departing owner, often after a specific event such as the owner’s retirement or death.
- Trusts: In this method, the business owner chooses a trustee, or a board of trustees, to manage business assets. The trust can continue to control the business indefinitely or a successor can assume control at an agreed upon time.
- Employee Stock Ownership Plans (ESOPs): This vehicle transfers the ownership of the business to an ESOP trust. The trust purchases the owner’s stock and holds it in a suspense account. Funds from the account are allocated to employee participants over a designated period, which encourages employee performance and retention.
Minimizing stress and ensuring the survival
Implementation of new ownership is often a stressful time for owners and employees alike. Having a business succession plan can make the process easier for all involved, even if the succession takes place under less than ideal circumstances.
You spent a lifetime creating a profitable business. Position it for continued success in the event of the expected or the unexpected by having a succession plan in place.