Sole proprietorships, closely-held businesses, and family businesses are often the product of years of hard work, investment, and sacrifice. To call such businesses a “labor of love” would be no exaggeration, because starting a business is like taking in a family member who needs constant care and attention to grow and thrive. Business entities in New York and New Jersey law will continue to exist after their owners are no longer able to run them. It is therefore critical for small business owners, shareholders, members, or partners to plan ahead for contingencies that might prevent them from working, and for succession of the business when the owner or owners are gone.
The preservation of a business’ legacy requires the anticipation of reasonably possible events that could severely impact a business owner, and therefore the business, and preparation for how the business may continue. The death or long-term disability of an owner can make future governance of the business uncertain. If a business owner’s spouse or child becomes disabled, that could cause the owner to need to withdraw or retire from the business. An owner’s divorce could lead to the inclusion of the owner’s business equity in a property division. Other events, such as a partner’s bankruptcy, could trigger a sale of equity in the business. Not all contingencies are entirely negative, of course, such as if an owner finds sudden fortune and wishes to leave the business behind.
Planning for legacy preservation ideally begins when the business itself begins, with planning for one’s exit from a business included in planning for one’s entrance. Here are five tips to help business owners plan ahead:
1. Identify Goals
Identifying where you want your business to go will help you determine what you want to leave to your successors or heirs. Active businesses that require an owner’s daily involvement present different challenges from businesses that provide passive income, and they require different forms of planning for the future.
2. Identify Risks and Liabilities
The goals of a business owner can help determine the risks or roadblocks the business may face. Businesses that sell from inventory, for example, face different risks than businesses that provide professional services. The personal circumstances of the owner also affect the business’ potential obstacles, such as known health conditions or financial concerns.
3. Plan for Contingencies
A business should be able to continue in operation if its owner is incapacitated. Having staff or business partners that are able to continue the business during an owner’s absence is one option, along with insurance that can pay business operating expenses. A financial plan that sets aside money for “rainy days” is also a good idea for contingency planning.
4. Plan for Succession
In the event of an owner’s permanent disability or death, business succession planning ensures that the ownership and, hopefully, governance of a business will continue with minimal interruption. Preparing successors is perhaps even more important than identifying successors. No will or estate plan can compel a successor to run a business a certain way, or to run a business at all if they do not want to. Planning ahead for succession, with the involvement of the successors, can give an owner a certain peace of mind about a business’ future.
5. Find Good Advisors
Capable and knowledgeable assistance is crucial to creating an effective contingency and succession plan. This should include a lawyer with experience in New Jersey and New York business law, as well as financial, accounting, and management advisors.
The business attorneys at Samuel C. Berger, PC offer fixed-fee packages of legal services to businesses and entrepreneurs who want to do business in New York and northern New Jersey. To speak to a member of our skilled legal team, contact us today online or at (212) 380-8117.
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Hurricane Sandy and Force Majeure for New Jersey Businesses, New York & New Jersey Business Lawyer Blog, November 30, 2012
Three Issues to Consider When Buying a New York or New Jersey Business, New York & New Jersey Business Lawyer Blog, September 14, 2012
New York Tax Court Rules that Business is Liable for Full Sales Tax Bill after Transfer of Business Assets, New York & New Jersey Business Lawyer Blog, August 30, 2012
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