Business Succession Planning: What Happens to a Business When the Owner Dies or Becomes Incapacitated?
No one ever expects to die or become incapacitated, but the unfortunate truth is that it can happen to anyone at any time. What happens to your business when you are no longer able to run it yourself? If you don't have a succession plan in place, the answer is not pretty. Your business could be sold off, closed down, or passed on to someone who may not be interested in running it. In this blog post, we will discuss how estate planning can help protect your business in the event of your death or incapacity.
Type of Business Structure
The business structure will impact the outcome of what happens to the business in the event of the death or incapacity of the owner. For example, if you are a sole proprietor, your business will likely die with you unless you have designated someone in your will to take over. If you are a partnership, LLC, or S-corp, things become a bit more complicated because there are usually multiple owners involved.
In the case of LLCs, the managing member will typically have the authority to make decisions about the business in the event of your death or incapacity. If there is no managing member, or if the LLC agreement does not specify what should happen in this situation, North Carolina succession law will determine how the LLC will be managed.
Partnerships and S-corps are similar to LLCs in that there are usually multiple owners involved. In the event of your death or incapacity, your business partners will have to make decisions about what to do with the business. If you have not specified in a partnership agreement the remaining partner may take over the business or buy out your heirs' portion of your share of the business.
Why does succession planning matter?
Succession planning for businesses matters because it helps to ensure that your business will continue to run smoothly even if you are no longer able to do so yourself. It also helps to protect the value of your business and ensures that it will be passed on to someone who will appreciate and care for it as much as you do.
There are a variety of outcomes depending on the type of business structure, type of industry, and if multiple owners are involved. If you fail to plan for a replacement owner the law will handle these matters for you, sometimes through ending the business. However, business ownership may be more profitable than dissolution so having a proper ascension process in place to allow for the continuation of the business can place your loved ones and your business legacy in a greater position.
Creating a Succession Plan
In the Articles of Organization, a section for change in management and succession planning should be included. LLCs have the ability to name a successor manager in their LLC operating agreement. If you are the sole owner of your business, you can designate a successor in your will.
It is also important to have an up-to-date buy-sell agreement in place. This document outlines what will happen to the business in the event of your death or incapacity. A buy-sell agreement can help to ensure that your business or shares in the business are sold to a buyer of your choosing, and at a fair price. It can also help to prevent disagreements among business partners about what should happen to the business.
It is important to consult with an attorney to discuss the best way to protect your unique business in the event of your death or incapacity. An experienced estate planning attorney can help you create a plan that will ensure that your business is passed on to the right person and that it continues to run smoothly even if you are no longer able to do so yourself.
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Estate planning is an important consideration for all business owners, regardless of the size or structure of their business. Contact Hunkin Law to discuss the best business legacy plan for your business.