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What Do Succession Plans Cover?

What Do Succession Plans Cover?

Good succession plans cover, at minimum, the following scenarios:Next Steps

DISABILITY: What happens if you become disabled? Who will run the business? Will all the owners need to participate in the ongoing operation of the business? Will each owner need to devote his or her full time to the business? How will that be defined?

DEATH: What happens to the business if you die? When there are multiple owners, death raises several additional concerns. For example, will an owner be allowed to transfer his or her interest at death to someone other than the existing owners?

TRANSFER OF OWNERSHIP INTERESTS: Before death, will an owner be allowed to sell part or all of his or her ownership interest to a party who is outside the existing ownership? Will the plan allow transfers to revocable living trusts or other entities that have longevity without a “heartbeat”? What is appropriate in the beginning may be inappropriate years down the road.

OWNERSHIP INTERESTS AS BONUSES: Will the owners employ a manager? Will they give this person a percentage of ownership? Will there be incentive- or production-based compensation?

DIVORCE OR LAWSUITS: If one partner divorces or is sued, how will this affect the business? How will the owners protect themselves from business liabilities? And how will they protect the assets of the business from any personal liabilities the owners may incur?

BUSINESS VALUATION: How are businesses of this sort generally valued? How important will valuation be to future decisions?

SALE OF THE ENTIRE BUSINESS: Is it likely that you will sell the business as a going concern if you want to retire?

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