Business Succession

Succession planning is vitally important for any business whether there is one owner or multiple owners. In one case our firm was originally contacted by a person who ran a successful business. They were looking to sell the business and he was going to engage our firm to represent them if and when they found a buyer. We discussed that there was no written succession plan in place but since the partners completely trusted each other they never felt the need to do so. Sadly, one of the owners suddenly died before a buyer appeared and before we were ever engaged to represent them.

The surviving owner and the deceased owner’s family had different ideas on the valuation of the deceased partner’s share and within weeks attorneys were hired on both sides. When talks broke down litigation quickly ensued with a legal battle that spanned years, cost each side hundreds of thousands of dollars in legal bills, and damaged relationships.

If the partners had a succession plan in place, they likely could have avoided years of bitter fighting and hundreds of thousands of dollars in legal bills. It is never fun to talk about disability or death let alone pay several thousand dollars in legal fees. However, taking the time and spending the money to set up a thoughtful succession plan can reap huge benefits and savings down the road for you and your loved ones.

While anyone who takes the time to do succession planning for their business should be applauded for thinking ahead, not all succession planning is created equal. In one case a client came to us to discuss estate planning. It came out in conversation that they had recently done some succession planning for their family business with a different law firm. When the client explained to us what had been done and showed us the documents it immediately became clear that there were some significant issues in the succession planning that created very serious income tax, estate tax, estate planning, accounting, legal, insurance and corporate governance problems.

The client had a signed contract for the sale of the business assets to their son and the son had formed a new corporation to operate the business. However, nothing else was ever done beyond signing the contract and forming the corporation. No assets were transferred or re-titled, new forms and contracts were never created showing that the business was now owned and operated under a new corporation, the employees were never notified and their payroll remained processed through the old corporation, insurance and pension arrangements were never addressed, etc.

Luckily for our clients it was not too late. We developed a creative multi-stage solution that terminated the original contract and restructured things to obtain optimal legal, income tax and estate tax, and estate planning results. Our plan also minimized the potential risks associated with how they had originally set things up.

Because our firm practices in the areas of taxation, business, and estate planning we are uniquely suited to tackle issues from all three directions. This “Three Dimensional Matrix Planning” allows us to give more complete representation of our clients and help them get more of what they want and less of what they do not want.