Patrick recently moderated a Business Succession Planning seminar by Bob and other experts to a group of lawyers. Here are some highlights:
Many business owners and professionals have not done any succession planning to address who will manage and own the business when the owner is disabled or dies. Thoughtful planning helps the owner achieve peace of mind, protects co-owners against an unanticipated new co-owner, assures customers that their needs will continue to be met, encourages suppliers and lenders that payments will continue and protects the owner’s family by maximizing value.
Planning prevents dissipation, minimizes disputes and avoids unnecessary legal and accounting fees and litigation expenses. An effective agreement establishes a fair method to determine value and provides a ready market for ownership transition. Some plans involve cross-purchase (one owners buys the other’s interests on disability or death) or redemption (the business buys the interest) and can often be partially or entirely funded by life insurance. Events which trigger buyout can include termination of employment, bankruptcy, long term disability or death.
As with most legal matters, it is best to address matters prior to actual need. Details such as persons who are qualified to buy, terms of payment, security for the promise to pay, personal guarantees and competition after buy-out can be addressed most effectively while people are thinking clearly.