Estate plans essential for small business owners
Individuals can spend a lifetime building a closely held or small business. In many cases, particularly for businesses that have been profitable for many years, an owner does not wish to sell as he gets older, but rather to keep it in his family. When this is the case, it is essential for business owners to develop an estate plan.
In many cases, a business will be the most valuable asset in a person’s estate. This can create numerous challenges, many of which can be addressed with careful planning. Valuation, for example, can be a particular challenge.
Consider the following situation: you are the owner of a successful small business and you have three children, only two of which are actively involved in the business venture. This seems straightforward enough, but it not only creates potential problems for your business, but also could impact your family’s ability to get along. In many cases, when part of a family is involved in conducting the day-to-day activities of a business, they will wish to either reinvest the profits back into the business or to take a larger portion of the profits as fair compensation for their efforts. Those who are not involved in the day-to-day activities of the business will typically wish either to be bought out or to receive a larger portion of the business’ profits in the form of dividends. No matter what, these sorts of situations can cause tension and, unfortunately, litigation.
One possible solution to these sorts of issues is to transfer ownership of the business while the members of the older generation are still alive. This not only allows them an opportunity to ease familial tensions, but also to ensure a smooth ownership transition to the younger generation, which can help ensure the success of the business for years to come.
It is important to remember that there is no one-size-fits-all solution to estate planning issues, particularly when it comes to the owners of small businesses and closely held corporations. It is important to remember, too, that it is better to begin the planning process sooner rather than later and to have conversations with your family members about your wishes.
If you are the owner of a small business or closely held corporation, schedule a consultation with an experienced small business attorney. An attorney can listen to your concerns and help you craft a plan that meets your goals.