Scenarios You Should Prepare for in Raleigh and North Carolina
Business succession planning can cover a wide range of scenarios. The practice is not limited to anticipating situations where you unexpectedly pass away.
Business succession planning can help prepare you for situations where:
- You become disabled
- You and your spouse divorce
- You choose to retire
- You suddenly pass away
A successful business succession plan will protect both the interests of your loved ones as well as those of the company. You will need to ensure mechanisms are in place to make sure you, your family, and your business’s leadership are set up for success.
Elements of a Successful Business Succession Plan in North Carolina
Any succession or exit has the potential to cause chaos in an otherwise functional company if the appropriate preparations are not made. The company will need to adapt to new leadership, sometimes without any notice, and manage the tax liability that comes with any transition.
The challenge of planning a business succession is it requires you to address and provide meaningful answers to difficult questions. It also acknowledges that tragedy can strike at practically any time.
Our Raleigh business succession planning attorney can help you answer these pivotal questions:
- Who will own the business? You will need to decide who will possess the controlling stake in the business once you exit the company. Choosing a new owner can be a both symbolic and practical decision: You should ideally select someone who has a strong familiarity with the business model and is committed to the venture’s continued success.
- Who will operate the business? In many cases, the owner of the controlling stake will also make both day-to-day and broad decisions about the business’s operations. In some cases, the individual or individuals who own the business and the person or persons who are chosen to continue to run it are different people. In either case, you will want to carefully consider the experience and capability of your anticipated leadership.
- How will the transition function? You should assume for sake of worst-case scenario planning that your exit might be abrupt. In that instance, the rest of your company’s personnel will have limited time to react and adjust to the new normal. Ideally, you will need to leave behind clear steps that will facilitate an orderly transition. You want to avoid situations where people are not clear on who is in charge.
- How will your estate be compensated for your contributions to the business? You have almost certainly put blood, sweat, and tears into the soul of your company. You may have even been responsible for building it from nothing. You deserve to be fairly compensated for your contributions and stake in the venture. Even if your exit is the result of your passing away or becoming incapacitated, your estate – and thereby your family – should still be rewarded.
- How can you reduce tax liability? No matter the reason, any company going through a transition of leadership is subject to some level of transitional taxes. Without proper planning, these taxes can be immense and can adversely impact both you (or your loved ones) and the company itself.
- How can you avoid other unintended consequences? The truth is that any exit is bound to cause disruptions, even if the transition is planned well in advance. You should do everything possible to mitigate how these consequences can affect you, your family, the company’s new leadership, its employees, and your clients.
Why You Need Legal Assistance with Business Succession Planning
Some business leaders put faith in themselves, each other, and the strength of their business. They believe that they will be able to navigate any conflict that comes their way and that business succession planning is not necessary. This confidence can sometimes stem from a discomfort in having hard conversations and deciding with some finality who will stand to inherit ownership and control.
You might hope that informal conversations about succession and future leadership are enough. With so much at stake, you will almost always need legally enforceable tools to conduct an orderly and effective transition. Failure to put mechanisms in place can jeopardize the stability of a previously healthy company.
Businesses without effective succession plans can suffer many consequences, including:
- Heavier tax burdens. Transitional taxes can represent an expensive liability to a company already reeling from an unexpected transition. They can also harm the business leader exiting the company or the loved ones of the leader if they have become disabled or passed away.
- Leadership churn. If valued company management and leadership personnel does not have faith in the future direction of the company, they are less likely to invest more time and energy there. This can result in quality executives looking to the exit door themselves, unnecessarily robbing the company of talent.
- Shareholder uncertainty. If your company is publicly traded, shareholders want to feel confident about the future and stability of a venture. A disorganized or chaotic leadership transition can send share prices plummeting and cause severe or even permanent damage.
- Leadership vacuum. If it becomes unclear who is meant to assume ownership and control of the business, top executives may begin to vie for power. This can lead to toxic and unproductive battles that take away from the continued smooth operations of the company as well as contribute to other problems.
- Ill-timed exits. No one can control when a business leader passes away or is seriously injured. However, many exits are the result of an executive voluntarily retiring or selling their stake in the venture. In these cases, it can be important to understand how the timing of an exit impacts the perception of the company as well as any practical implications. If the business is about to undergo a significant product launch or merger, for example, it may be wise to delay a voluntary exit to avoid unnecessary uncertainty.
- Reduced overall value. Many of the aforementioned potential consequences of a mishandled exit all contribute to lost value for the company. Any controversy or practical loss in share value can damage the enterprise’s ability to effectively conduct future business.
- Insufficient compensation for the exiting party. You and your family deserve to be paid for your work at the business. Without an enforceable agreement in place defining this compensation, you and your loved ones may not receive what you should be entitled to.
Our team can help you avoid these consequences and more through effective business succession planning. We are familiar with many of the avoidable mistakes that companies and their leaders make and can help you understand the planning tools available to you.
Some of the business succession planning tools we can assist you with in North Carolina include:
- Business Overhead Expense Insurance Policies. You likely represent a tremendous asset to the continued success of your company. By investing in an insurance policy, your venture’s overhead expenses can be covered in the event that you are injured or pass away, giving your company time to adapt with minimal financial disruption.
- Disability Buy-Out Insurance. There are situations where you might become disabled and unable to maintain your work as the leader of your company. An insurance policy tailored to this scenario can cover a buyout of your stake in the business, protecting both you and the business.
- Buy-Sell Agreements. You deserve to reap the financial rewards of building and augmenting a business. Negotiating your buyout terms in advance through a buy-sell agreements can help avoid ugly conflicts later and protect your interests should an abrupt exit become necessary.