I saw a clip from Back to the Future the other day. If you’ve seen the movie, you know that a few things changed between the “before” 1985 and the “after” 1985, in part because the characters in the 1950s had a glimpse of what might be – and made a few different choices because of it.
That chance only happens in the movies. None of us know what tomorrow will bring. And because of that, we need to plan for the what-ifs in life. If you own your own business, it is even more important.
When you own a small business, your business is very much your life–and your life is very much your business. The two are often intertwined in terms of your personal resources, your money, your time, and your space. Many small businesses employ family members, so if something happened to the owner of the business, it could have a trickle-down effect on the rest of the family.
Here are the big considerations:
1. How is your business structured? If your business is structured as a sole proprietorship, the business and its existing contracts essentially end when the sole proprietor is no longer able to operate the business. But if the business is structured as a limited liability company (llc) or a corporation (s-corp or c-corp), the business is a separate legal entity. It has a separate “life” and a value. This allows the business to continue making money, and potentially continue supporting your employees, even if something happens to you. Your family and employees can choose to sell the business or continue to operate it. Either way, the business is structured in such a way as to allow the business to continue to support your family and your employees.
2. Do you have a business succession plan in place? A succession plan is a step by step explanation and plan for what happens if… For example, if Owner A is unable to make a business decision, is there another owner or shareholder that has that right? Or has Owner A officially appointed another party through a succession agreement? It’s a good idea to ask a trusted colleague or advisor to be available if something happens to you. While that person wouldn’t necessarily run your business, they can step in at the beginning and help your family and employees figure out what’s next. In my case, I need to talk to an attorney friend or two. If something ever happened to me, it would be good to know that one of my trusted colleagues stepped in and took care of my clients and either personally handled my cases or helped my clients find new counsel. If you are in a partnership or joint ownership arrangement, you want to have a buy-sell agreement in place that allows the partnership to buy another’s share in the event that something happens. You will also want to have life insurance in place so everything will work out smoothly financially.
3. Have a personal plan As much as we are talking about business, keep in mind that your business and your life are pretty close together. At the very least, you will want to have a will in place that designates not only the ownership of your personal assets, but also indicates who will receive your interest in the business. Another estate planning option is a trust of some sort, where assets are transferred to the trust either during your lifetime (a living trust) or after death (a springing trust). You will want to talk about which one would be more advantageous for you with an attorney. While you are planning, you might as well consider whether you need to implement a power of attorney or name a healthcare representative. These documents appoint people you choose to make decisions on your behalf when you are not able to. You can expressly build clauses into the documents that state that the powers are not effective unless you are incapacitated.
(c) KJD Legal