If you own a business, ask yourself this question: What will happen to my business when I can no longer work? Fortunately, a business succession plan due to an owner’s incapacity will assure a smooth transition. The best way is to develop plans before incapacity strikes.
Legal documents usually are prepared when forming a business. The number and type of documents vary depending on the type of entity that is being established. For example, a corporation usually requires more formation documents than a sole proprietorship.
While going through the steps to set up a business, take time to address the incapacity of one or more owners.
A business entity’s formation documents may contain provisions that address the incapacity of any of the owners or partners.
This document may be prepared and signed when a company is created. However, a buy-sell agreement can be negotiated at any time during the life of a business. This agreement may be a standalone document or it may be a provision in another document. Buy-sells allow partners, shareholders, or the company itself to buy out a disabled partner’s interests.
Sometimes companies will take out insurance policies on owners and partners. The payout from a life insurance policy may provide the funds needed to buy out a deceased partner’s interests. However, disability insurance may also be purchased to cover business operation costs if an owner or partner becomes incapacitated.
Business owners could consider transferring their business interest to a revocable living trust. Acting as trustee, the owner retains control of the business. When the owner is no longer able to manage the business, due to either disability/incapacity or death, a successor trustee would take over.
While still healthy, the business owner could train family members or key employees to take over the company if necessary. This option, however, still needs a legal mechanism to work. A durable power of attorney could name an agent to take over business operations if the business owner is no longer able to do so.
Business succession and incapacity planning are often handled through an individual’s estate plan. Consult with an experienced attorney to learn which strategies are viable options for your situation.
Do you question the need for attorney guidance with so many online resources? Because laws and regulations are complex, and because every person has a lot at risk, more people than ever are seeking professional guidance from an experienced, knowledgeable source. That helps explain the rapid growth of our firm. Whether you happened upon this website by accident or are one of the many referrals we receive from a nearly 15-year collection of satisfied clients, our staff can provide customized estate planning guidance for you. Call us. Our number: 1 (772) 218-0480
Written by: John Mangan, JD, MBA