Differentiating Owner-Dependent, Multi-Generational, and Marketable Business
Posted by Joseph Franks on March 6th, 2020
Your business is certainly your biggest asset and perhaps the sole source of income for you, and your family. Therefore, your business needs adequate estate planning in order to keep providing for dependent family members in the aftermath of an unfortunate event. The right Business Transition Plan will help secure the future of your loved ones, following your demise. Los Angeles Business Law & Estate Planning Lawyersuggests that you determine the type of business you own and reflect over its fate in your absence. Most businesses fall into one of the following categories:
If you single-handedly control all aspects of your business or your company primarily depends upon your skills, you may qualify for an owner-dependent business. You probably have a few employees to take care of secondary errands, but their services are fruitless without your role. This business plan is widely recommended for small-scale private facilities, such as a dental clinic, architect/designer office, or a one-of-a-kind diner. It is unlikely or impossible that any of your descendants could continue the business after your death; hence, transfer is not a feasible option. Your kids could be perusing an unrelated profession or simply show no interest in your line of work, so it’s inevitable that the business ends with you.
The smart move is to maximize the profits of your business while it’s functional, whilst minimizing personal liabilities. You can do this by creating a limited liability entity (such as an LLC) and purchasing liability insurance. Your business contracts need to be transparent and discuss all liability issues. In addition, document your intent of business termination and the company’s confined value upon your death, so that your family isn’t burdened with estate taxes.
When family members actively participate in a business or you expect your progeny to takeover after you die, a multi-generational business plan is well-matched to your situation. Dividing your estate among multiple heirs can be a tough process and defining their future roles in the business requires thorough contemplation. It is possible that only half of your children are inclined towards the business and the rest do not wish to contribute. On the other hand, your kids might be too young to run the company right after your demise.
Frankly debating the matter with your successors is a reasonable solution. Those who intend to take part in the business can be assigned controlling rights and financial interests, while the remaining shall only receive financial interests. Alternatively, you may opt for a buy-sell agreement where you can set an acquisition plan for heirs, which comes into effect once you are gone. This encourages them to exercise responsibility and earn the authority.
If you wish to sell your business to a third party rather than leaving it to blood relations, a marketable business makes sense. The first step is to obtain a clear idea of what your company is worth, so consult a professional for business evaluation; this will help you come with a practical offer for interested buyers. The next step is to organize all your financial, corporate, and legal records, in order to facilitate and accelerate the process. In case of failure to complete the agenda during your lifetime, consider appointing a competent trustee to take charge in your place.
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About the AuthorJoseph Franks
Joined: September 16th, 2019
Articles Posted: 102
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