Business Succession Lawyers in New York City and Suffolk County
Experienced Planning for LLCs, Corporations and Partnerships
No company can survive without an able owner‚ executive‚ or shareholder at the helm. In the event of a key member’s sudden death‚ illness‚ or retirement‚ businesses are often left scrambling to recover lost assets and find a replacement. Large corporations and small businesses alike can avoid a tumultuous transition by creating a succession plan with a knowledgeable business succession planning attorney.
Without a Plan
If an owner‚ executive‚ or shareholder does not have a succession plan in place‚ his or her stake in the company is either passed on to relatives as part of the estate‚ absorbed by other shareholders‚ or a combination of the two.
In family-owned businesses‚ disputes may occur between siblings and other relatives. Those more active in the day-to-day operations of the business may feel entitled to larger shares than others who are less involved.
In larger corporations‚ employees and clients may leave the company for fear of instability‚ shareholders may not be able to buy out the extra shares‚ and temporary replacements may not be equipped to lead the company through such a delicate time. In addition‚ if a spouse or other relative inherits the shares of the deceased owner‚ disputes between shareholders may occur‚ stalling progress and possibly leading to a loss of assets.
With a Plan
An attorney with expertise in business and estate planning can help owners and shareholders make a plan to ensure a smooth transition. Plans are customarily created after employees‚ coworkers‚ other shareholders and family members have been consulted and after goals for the future of the company have been outlined. Though succession planning can be tailor-made to fit any business model‚ it typically involves either retention or buy-sell retention.
- Retention Planning involves keeping the business or shares within the family. With a retention plan a spouse‚ children‚ or other relatives will retain control of assets.
- Buy-Sell Retention Planning offers the other shareholders or vital employees a larger stake in the company. Interested parties stipulated in the plan will be granted the right of first refusal‚ or the ability to accept or reject the shares before they are offered to individuals outside of the company. The price of the shares will be determined by a valuation mechanism agreed upon during succession plan negotiations. For example‚ a valuation mechanism may require that shares be offered for their prevailing full market value‚ or require multiple professional business valuation appraisals.
Properly drafted succession plans provide the remaining members of the company with a procedure to follow in case the unexpected happens. Planning can designate a competent successor‚ a successor will be named who will be able to guide the business through the transition‚ reassure employees about their job security‚ and put safeguards in place to protect the company from loss. A pension or retirement fund may also be written into the plan.
Other arrangements can be made that would transfer the owner or executive’s interest into trusts to be paid out to family members. Assets may also be divided among employees or in other cases‚ it may be best to sell the company. With so many factors to consider‚ it is important that you consult an experienced business planning attorney who can understand all of the interests at stake and work with you to protect them.
Valuation, Retention, Transfers, and Buy-Sell Agreements
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Our elder law attorneys have been helping New York seniors and their families navigate the legal landscape for twenty-five years. Our attorneys do not just dabble in elder law, we help shape it through advocating for seniors' rights in Albany and through the bar associations. We have built relationships with assisted living facilities, nursing homes, and home healthcare agencies across Long Island the five boroughs of New York City - that allow us to better serve our clients. As a firm, we care deeply about helping seniors in our community age with dignity and autonomy.
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Frequently Asked Questions
Business succession planning simply means choosing who will inherit a business and how they will receive it. Rarely do closely-held businesses have succession plans built into the organizational documents. This means that business owners must plan the transfer of their business with an estate planning attorney. A proper business succession plan should take into consideration estate tax, best organizational structure for seamless transition, and how family members will be compensated.
An estate planning attorney can help a small business owner map out a plan for the future, including contingencies for retirement, disability and death. Without some direction the business can fold upon the owner’s death, assets can be distributed according to statute instead of preference, and opportunities to protect and pass on savings to family can be lost.
Small business owners need a power of attorney in place or a trust to designate someone to take over operations in case of incapacity. A Will or a Trust must lay out what assets go to whom. There are trusts and organizational structures to ensure a smooth transition of ownership upon retirement or death.
To illustrate, John inherited his family’s gas station and he and his wife Laura ran it for 25 years. They had four children, two of whom are estranged. John passes away without a will and very little liquid assets. Since the business was in his sole name, his wife now has to split it with their children – either buying them out or handing over half the profit to them. Moreover, Laura has no legal authority to continue to run the business without going through the Surrogate’s Court. This was likely not what John wanted – he wanted to pass the business to his wife and then to the kids (or at least 2 of the kids).
Stories like this abound in the small business community. There are several solutions to this scenario, one of the simplest was to place the business in a trust and name a co-trustee or successor trustee to avoid family conflict and the courts.
Whether as a business owner you need a trust or a Will depends on your succession plan and corporate structure. A trust, as opposed to a will, provides a seamless transition that sidesteps the courts, which could be necessary if you have a business or income producing property in your sole name. If an executor has to wait months or years to go through probate to get the authority to run or sell your business, it may fold well before then.
A Family Limited Partnership (FLP) is a limited partnership structure to hold family businesses, real estate and investments. The FLP provides creditor protection and efficiently transfer wealth between generations, and shift income tax burdens. The general partners maintain control over the management of assets and limited partners buy shares in exchange for shares that generate profit.
Business or “key person” life insurance is purchased and paid for by a company or partnership to insure the lives of owners. The company receives the insurance payout upon death, which is then used to “buy-out” that partner, thereby providing proceeds to the family. Key person life insurance also funds a buy sell agreement in case of death, disability or retirement. The life insurance payout can also be used to pay off debts, bide time to find a replacement, pay severance or otherwise provide capital to wind down the business.
An Irrevocable Life Insurance Trust (ILIT) moves money out of your estate to reduce NYS estate taxes and could provide liquid assets for a closely held business upon death of the owner. It could also be used as liquidity for a child who will inherit the family business to buy out siblings.
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