Estate Planning for Business Owners: What Happens if You Don’t Have a Succession Plan in Florida?
The mere thought of death can be overwhelming, which is not surprising why many people are reluctant to think about their own death, let alone plan for it. But if you own a business, you need to understand that without a succession plan, your business may die with you.
If you own a business, you should consider creating a succession plan, even if you have a long life planned ahead of you. Any business owner can benefit from having a well-drafted succession plan if they or their business partner:
- gets divorced;
- becomes disabled or incapacitated;
- retires;
- leaves the company; or
- dies.
Basically, a succession plan is a key estate planning document for business owners that provides for the continued operation of a business in any significant event.
The Owner/Business Partner Dies or Becomes Incapacitated
When one of the business owners dies, their own interest in the company will transfer to pursuant to their estate plans, if any. The future of the decedent’s ownership interest will be dictated by that deceased owner’s Will, if any, or by laws of intestate succession of the state where the decedent resided.
If the decedent’s ownership interest must pass through probate, the process can be quite time-consuming and expensive. Moreover, the Personal Representative (or Executor) of the deceased individual’s estate may need court permission in order to continue the business. A succession plan can ensure how the deceased owner’s interest will pass and provide parameters around it. Therefore, the business controls who remains an owner while ensuring the decedent’s estate receives their rightful share. You may often find a “right of first refusal” or restrictions on transfers in the governing documents that cover this scenario. Often, business partners purchase life insurance policies on their business partners so there is cash paid to the surviving business owner(s) to “buy-out” their interest from their estate.
However, if you’re a sole business owner, it’s important you have a succession plan so that the business can continue to operate seamlessly upon your death.
When a Business Partner Retires
If your business is an LLC (limited liability company) or a corporation, an operating agreement or bylaws, respectively, can become a fundamental part of your succession plan. These formal and enforceable agreements minimize the risk of conflict between business partners and describe what happens when one of the partners retires.
Without a succession plan, disputes and disagreements are likely to arise between the remaining business partners. For example, how shall the business be valued? Who is going to “buy out” the retiring owner? Should a retiring owner keep some sort of ownership despite retirement?
When a Business Partner Gets Divorced
A business partner’s ex-spouse may take ownership of the company in the event of their divorce. This can happen if you and the remaining business partners do not prepare a legally-binding buy/sell agreement (for corporations) or draft provisions in an operating agreement (for LLCs) to prevent a business partner’s ex-spouse from becoming a part-owner in the company in the event of divorce.
You can include provisions in a succession plan that would require a former spouse to sell their ownership interest back to the company.
If you own a business in Florida, it is vital to consider creating a succession plan to protect the future of your business. Consult with our St. Petersburg business succession attorneys at Legacy Protection Lawyers, LLP, to explore your options. Call us at 727-471-5868 to schedule a consultation.
