Whether a business is still in the formation stages or has a proven track record of success, one aspect no owner should overlook is a succession plan. When the day comes to transfer ownership of your company, you want it done on your terms. Failing to take into consideration random and serious life events that may interfere with your ability to continue managing your company can create challenges in the long run that negatively impact your business.
Ownership transfer plans give business owners flexibility and greater control over their ventures. Here are a few key provisions that every entrepreneur or small business owner should consider.
Ownership transfer triggers
Determine what events must occur for you to consider giving up ownership of your company. For example, if you plan to retire at a certain age, want to pass your business down to a loved one or want to expand and share ownership with another, you should incorporate a business transfer strategy that enables you to meet your specific needs when the time arises.
Know the business value
There is never a wrong time to have a valuation done for your business. You should have it appraised periodically too. Knowing your company’s worth gives you leverage you can use to negotiate better transfer/sell terms in the event of a buy-out or help protect your assets and interests.
Review shareholder, vendor and member agreements
Ownership transfers depend on a company’s formation structure and require all co-owners and certain parties to agree. LLCs have operating agreements that outline the steps owners must take before an ownership stake transfer can occur. Corporation-structured businesses have a different ownership transfer process due to their formation.
Not all changes in business ownership are due to straight transfers. Some changes in ownership are due to the original owners selling interests. Carefully consider your company’s structure and business transfer/sell protocol agreements to avoid potential tax and legal issues.