Business Succession Planning
Because ownership in a business is an asset, without proper planning, it is possible that a business interest owned by an estate will have to be split between heirs, or possibly even liquidated to satisfy expenses, claims, and taxes, when the time comes to administer the estate in probate.
For many business owners, this is an unacceptable outcome. For these people, it may be in their best interest to create a business succession plan that outlines what is to be done with the company upon their passing. In cases of terminal illness, it may be best to hand over control of a business before death. For more information on how probate affects Stuart business plans, contact a business succession lawyer.
Stakes in a Business as an Asset
A person’s ownership of a company or shares of stock are considered probate assets when a person dies owning such in the person’s individual name. This means that submitting a decedent’s estate to probate obliges the court to evaluate each heir’s legal rights to that company ownership interest. In cases where a person dies without a will, this can result in the business interest being split among a variety of heirs, despite the fact that it could spell disaster for the future of the company.
Ideally, a decedent possesses a will that thoughtfully stipulates how the personal representative should distribute the company ownership interest. Even so, wills are subject to challenges, and potential heirs who feel disgruntled may dispute their right to ownership of a company. However, a will is not the only way of providing for ownership of the company after death. A business succession plan is a thoughtful and wise way to provide for future company ownership.
The Purpose of a Business Succession Plan
In short, a business succession plan functions as a way to control what is to be done with someone’s business should they be unable to serve as an owner. However, an inability to control a business does not necessarily mean that death has occurred. The debilitating effects of physical or mental maladies can prevent someone from functioning just as readily. Therefore, it is essential to plan for the possibility of incapacity, too.
A proper plan attempts to anticipate and prevent future problems and may do any of the following:
- Name heirs for a stake in the company
- Mandate who will control which aspects of the company
- Order a sale of the company and how those resulting proceeds are to be distributed
- Outline a gradual succession plan over time
As a whole, a business succession plan determines what will happen to a company after an owner is unable or unwilling to maintain control.
Interactions Between Business Succession Plans and Probate
The purpose of probate is to properly administer a decedent’s estate. Normally, this includes validating a will, certifying a personal representative, and ensuring that the personal representative fulfills their legal obligations. However, there is more to proper planning than just a will.
Other legal documents may have a substantial effect on the future of a business. Chief among these are business succession plans that determine what is to be done with a company after the death or incapacity of an owner. An attorney can help provide more information about how probate affects business succession plans in Stuart and help you to maintain control over the future of your company.