Succession Planning for Your Arizona Business
Successful business entrepreneurs are naturally focused on getting their commercial endeavors off the ground and running, all the way to the bank. Of course, choosing to create or buy an Arizona business and make it your own requires smart planning from the beginning. But once things are sufficiently underway and business operations have begun to hum, it is never too early to plan for business succession.
Even though retirement, disability or death is not likely in the near future, of course the unexpected happens in life and you could suddenly be unavailable to run the business.
Business succession plans
So what exactly is business succession? Basically, when the current owner is no longer able or willing to run the business, or wishes to move on to other endeavors, it is the mechanism that determines who will take over or what will happen to the business. Will ownership and management transfer to others? Will the business or its assets be sold? Will the business simply wind down and cease operations? What other variables might there be and what will be the tax implications?
In a way, you may begin to plan for succession from the inception of the business, since some business formation agreements cover important eventualities such as key principals’ departures, business buyouts, exit strategies, turnkey prospects and even public offerings. So the more exciting the new business prospect, the more important it is to retain an experienced Arizona business attorney early on.
Oftentimes your lawyer can counsel and educate you about the various kinds of business entities available to you in Arizona and about reasonable succession agreements that can be implemented from the beginning of the business. Your business attorney can help you to choose the type of business structure that will work well for you not only at formation and during operations, but also when it comes time for you to step down, sell or even dissolve the business. Clearly, therefore, when you set up your business, thinking about long-term goals and succession planning may already be important.
Family concerns
Another important part of addressing succession planning issues relates to whether the business is a family affair. If you co-own the business with family members, employ them in key positions or accept financial investment in the business from them, expectations may exist or grow that those relatives will be part of the succession plan. You will need to consider individual personalities, capabilities, expectations and potential negative problems which might develop from familial infighting.
Key succession issues
Here are some key questions to consider personally and discuss with your lawyer in planning for business succession:
- Who will take over management of the company? Will that person have support and respect from others in management and from employees? Does he or she have the skills, training and experience to successfully take the helm, or could he or she be brought up to speed? Should the person be family, friend, employee or an outside hire?
- Will ownership of the business transfer to someone else if you retire or become disabled? Do you want the business to continue or close down? Should it be sold for the benefit of you or others? If you have a partnership or co-owners, what should happen to your share if they want to continue operations?
- What kinds of insurance are needed to plan for contingencies? Many buy-sell agreements are written to utilize life insurance and disability insurance in well-thought-out succession plans.
- With whom and how will succession decisions be communicated?
- What are the important tax considerations; will the business or individuals absorb tax liability; and how can tax burdens be minimized?
- Can you provide a method of resolving disputes among interested parties?
Skilled legal counsel invaluable
Your lawyer can educate you about the legal issues associated with the various aspects of your succession plan and help you make important decisions. When these questions are answered, your attorney can draft the necessary legal documents to set the plan in motion. You may not need to implement the plan for many years, but good or bad there are lots of surprises in life. Your legal counsel should regularly review your succession plan and make appropriate changes as the business evolves and as the interest holders change.