We highly recommend that business owners do succession planning to prepare for the future. Running a business can seem like a never-ending series of fires to put out. When you’re focused on taking care of your business’s daily needs, you probably haven’t prioritized making a plan for when you can no longer run the business. But unfortunately, death, disability, or divorce could suddenly disrupt your business operations. You need a plan in place should something happen to you.
What Is a Succession Plan for Business Owners?
A succession plan details what happens to your business if you die, become mentally or physically disabled to the point that you cannot run the business, or get divorced. It can also explain what happens to the business if you decide that you want to give up your ownership rights or if you are approached by someone wanting to buy the business. A good succession plan may include various types of documents or amendments to existing documents, such as:
- Will
- Trust
- Medical power of attorney (such as a Massachusetts Health Care Proxy)
- Financial power of attorney
- Prenuptial or postnuptial agreement
- Amendments to business formation documents, such as articles of incorporation or articles of organization
- Corporate motions or other business agreements
- Internal business guidance documents for your successor
Succession Planning for Death
If you pass away, your business becomes part of your estate. What happens to the business depends on whether you have an estate plan, such as a will or a trust. If you have an estate plan that explains who will receive your ownership rights in the business, that’s great – you’re several steps ahead of many business owners. If you have no estate plan or do not explain what happens to the business, business ownership rights will most likely pass to your closest heirs, such as your spouse, children, or parents. This might give you pause because those people might not be the best-suited to manage the business in your absence. Maybe you would prefer that your second-in-command take over, or maybe you would prefer to sell the business if you can’t run it. A good succession plan explains who will take over in your absence.
Succession Planning for Incapacity
Similarly, if you become mentally or physically incapacitated, someone will need to run the business in your absence. You need a plan in place, and you need a plan that provides safeguards for your return to the business should you recover from the incapacitating medical condition. You don’t want a situation where you give up control due to a serious illness, recover, and end up in a power struggle trying to regain control.
Succession Planning for Divorce
In addition, divorce could affect your business because the business is considered one of your assets. The divorce court could give your ex-spouse partial ownership rights in the business when your assets are divided. This could be an undesirable result for many reasons. A good succession plan explains what happens to the business in case of divorce. For example, you could amend your business formation documents to add a provision explaining what happens if a partner divorces. You also could sign a postnuptial agreement with your spouse regarding your ownership rights in the business.
Why Make a Succession Plan for Your Business?
Our estate administration lawyers have seen too many unfortunate situations where business owners had no plan for who would take over the business after their death. With no plan, an estate may need to undergo a lengthy and complicated probate process. The business may get distributed to heirs not suited to running it. It may get disposed of in a way that does not align with your wishes, but since your wishes weren’t expressed in legally binding documents, the estate executor has no choice. Daigle Law Office’s attorneys urge you to put a succession plan in place for your business so that your wishes will be carried out should you die unexpectedly, become incapacitated, or go through a divorce.
We’re Here to Help with Estate Issues
Do you wonder if your business succession plan addresses potential estate administration issues? Do you still need to put a business succession plan in place? Then you’re looking for Daigle Law Office’s dependable, experienced wills and trusts lawyers. Our attorneys can provide you with experienced assistance with Massachusetts estate administration. We help clients who need solid and reliable legal advice about estates and probate. To schedule a consultation, call 508-771-7444 or use our convenient Contact Form.
