Business Succession Planning in Florida
When a Florida business is being born, it is somewhat counterintuitive for its owner(s) or organizer(s) to spend much time or effort devising a business succession plan, which, essentially, is an outline for a possible exit strategy for the very business being created. But the truth is that when a business is being formed, it is precisely the right time to plan for any future contingencies which might occur because of an unforeseen change in circumstances.
What type of circumstance can threaten a business’ existence? Well, assuming that no company can survive long without a capable owner, executive, employee, or shareholder captaining the ship, the sudden death, disability, retirement, financial reversal, or other significant or serious event in the life of that key person can leave a business scrambling to contain any possible damage to its bottom line, in addition to having to find a suitable replacement for the absent helmsman. The cost, in terms of lost time, productivity, customer base, etc., when there is no succession plan in place, can ultimately cause a business – especially a small or family-owned firm – to shut its doors.
Alternatively, under Florida law, an ownership interest in a business is considered personal property and can be transferred to a decedent’s heirs or beneficiaries as part of his or her estate. Without a business succession plan in place, this can cause problems for any remaining owners of the business who may now have to accept the addition of a new owner without having had any input into the decision. Similarly, the divorce of an owner, member, partner or shareholder can lead to similar consequences.
Too Many Business Have No Succession Plan
Yet as important as it is to have a business succession plan, it is estimated that less than 30 percent of family-owned businesses in America have such a plan in place – and 95 percent of our country’s businesses are family-owned! So, if you have a business, or are contemplating launching one, you should carefully consider devising a succession plan, even as you are concentrating on the business’s survival and future growth.
And the earlier you devise your plan, the better. Why? First of all, when you are drawing up your company’s governing documents, e.g. bylaws, a partnership contract, an operating agreement, etc., you will likely have competent legal help by your side. Your counsel can easily help you add a succession plan at the same time. Second: member, partner, family, or shareholder discord is usually at a minimum at the initial stages of a business formation. Tensions and dueling agendas are more common at its ending or transitional stages. So it’s better to have an official agreement in place, early on.
In addition, there are many state and federal laws that must be carefully addressed so that a business can be legally transferred to new owner(s). Also, complex tax issues can be boons or pitfalls to the uninitiated as estate and/or income or capital gains taxes, as well as probate costs, can be more than heirs or new owners can afford, while also keeping the business operating. All of these issues should be dealt with long before it becomes necessary to transfer a business to others. Of course, the help of a knowledgeable attorney is essential when planning your succession plan.
Types of Business Succession Plans
Any business succession plan must give proper attention to tax and financial considerations, the interests of any employees, creditors, and clients, as well as determining who may be chosen to run the business, either permanently or transitionally, when the owner or key executive is no longer in control. And while a business succession plan can be tailor-made to fit any business model, there are two common types – retention planning and buy-sell planning.
Retention planning involves keeping the business within the owner’s family. It assumes that a spouse, children or other relatives will retain control of the business’ assets. It is usually created in coordination with the owner’s estate plan. In some cases, the plan can transfer a business owner’s interests into trust funds for family members.
Buy-Sell planning provides for the transfer of a business to another corporation, a business partner, a limited liability company, existing shareholders or vital employees, or an unaffiliated third party. Part of a Buy-Sell agreement is determining how to place a value on a business when it comes time to transfer its assets and how to minimize taxes when doing so.
Contact an Experienced Orlando Business Lawyer
Devising a business succession plan is an important consideration for all business owners. Here at John R. Samaan, P.A. we have the experience and expertise to help you decide how you want your business to continue after your death or departure. Let us help you protect the business that you put your hard work and assets into. Contact us today for a consultation.