Why Should You Implement a Succession Plan for Your Minnesota Business?
Deciding how and when to relinquish control of a business you have carefully built and run can be very emotional. You likely want to see your business legacy continue, whether in the hands of family members, employees, or an outside buyer. Ensuring that the transfer process is straightforward benefits not only you but the new owners, the employees, and the business’s overall health.
By creating a calculated, well-informed plan with an experienced Minnesota business succession planning lawyer, you can feel confident that everything will be in order whenever you decide to move on from your current venture. Your plan can also provide peace of mind to your family, investors, and business partners by outlining what will happen to your business interests if the unexpected happens and you become incapacitated or pass away.
What are Your Options for Transferring Your Business to a New Owner?
Business succession can involve an actual sale of your company, or it may only be a reorganization of your existing management/ownership structure. The right succession plan for your situation will depend upon your goals, business type, and the desired timeline for the plan’s execution.
Some frequently employed business succession methods include the following:
Many family business owners want to ensure the generational success of their enterprise and will seek to pass it down to younger family members. However, this type of succession plan requires a willing and competent family member who can take over the business and extensive preparations to ensure a smooth transition. Owners must also consider the impact of family dynamics on the business transfer and mediate any disagreements before they become detrimental.
If your business involves a partnership, you may wish to set up a buy-sell agreement to provide all parties with a clear-cut exit strategy. This business contract specifies what will happen to each partner’s share of the business if they die or leave the partnership. Typically, their share will be bought out by the other partners. However, this succession plan requires detailing solid methods of determining a fair value for the business and enacting a plan for funding the share’s buyout price, such as purchasing a life insurance plan for each partner.
Employee Stock Ownership Plan (ESOP)
A business can set up an ESOP as a benefit plan for all its employees. Through the ESOP, the employees can accumulate company stock through one of many methods. While an ESOP doesn’t necessarily have to transfer all of a business’s stock to its employees, it can certainly be utilized as a business succession strategy with proper planning. By ensuring ownership of the business remains with your employees, you incentivize their work, boost morale, and help ensure the continuation of the business culture you worked so hard to create,
Management Buyout (MBO)
In some business situations, the management team may decide to come together to purchase the business from the current owner(s). While there are inherent risks for the purchasers, it can also be a great investment opportunity if they have a vision for the direction of the business. This strategy keeps key management figures in place after the transfer and may contribute to the company’s stability.
Sale to Outside Party
A common exit plan for business owners involves selling their enterprise to a third-party individual or company. Many factors can play into the desirability of your business to outside purchasers, but close competitors may have a decided interest in acquiring your customer base, methods, locations, and other assets. It is essential to consult with a knowledgeable business succession lawyer long before you intend to sell your Minnesota business to ensure you optimize your ability to receive the maximum asking price for your company.
How Can Proactive Estate Planning Tie Into a Solid Business Succession Strategy?
Your business succession plan can be integrated into a comprehensive estate plan that ensures the financial well-being of you, your family, and your business during your lifetime and beyond. By utilizing powerful estate planning tools, your legal team can help you prepare for all scenarios, including a sudden decline in health or an unexpected catastrophic accident.
Some documents you may wish to have in place as a business owner to protect your company and make an emergency transition easier to manage include:
- Operating Agreement: Outlines expectations and roles of the partners/members/shareholders of the business.
- Buy/Sell Agreement: To determine what will happen upon the exit of any partner/member/shareholder to ensure the business can still operate successfully.
- Power of attorney: If you become incapacitated for any reason and can no longer make financial decisions, the trusted individual you designate can continue to run your business and manage your estate on your behalf.
- Trusts: A lawyer can explain how placing certain assets into trusts may be beneficial for protecting your wealth, aiding in the transfer of your business to your family, or navigating Minnesota laws.
How Can an Experienced Minnesota Business Succession Lawyer Help You?
A robust, flexible business succession plan helps you reduce risks and prepare for the future. Your plan can allow you to retain control of your business for as long as you wish while maximizing its value for your heirs or future successors. Our skilled business succession planning lawyers at Metropolitan Law Group, PA have detailed knowledge of Minnesota’s complex laws that could impact the transfer of your company. We can work closely with you and your financial advisors to create a succession plan that meets your unique needs and goals.
It’s critical to begin strategizing early to safeguard your business against unexpected life events and give yourself ample time to implement your plan. Frequently reviewing and updating an existing succession plan is also critical to keeping it in line with your goals and changing state laws. Contact our Minneapolis law firm today at 612-448-9653 to schedule your free, in-depth strategy session.