Relationships between Partners, Members, and Shareholders

Forming strong pre-planned and current succession plan

Business owners spend countless hours, money, and sweat building the business and increasing revenue.

  • What happens in the event that one of the owners dies or becomes disabled?
  • Can the business survive after the death of an owner?
  • Will the heirs be able (or want) to carry on the business?

Having a strong pre-planned and current succession plan in place prior to the inevitable death or disability of an owner will provide ongoing stability for the business, as well as the remaining owners' investment, and can prevent a significant loss of equity in the business. It will also facilitate a smooth transition in an undoubtedly difficult time for the business, its owners, and most importantly, its customers and clients.

The succession plan is also an effective way to transfer ownership from an estate to the other owner(s), or to the company directly, and can be funded through the use of life insurance (for the value of the owners' interest), ensuring an available pool of funds from which to purchase the deceased owners' interest. This is especially important where the named beneficiary of the deceased owners' estate does not want to be an active participant in the business or where it is known that the beneficiary and the remaining owners are unable to work together.

Once a succession plan is in place, it should be reviewed on an annual basis to consider the following:

  • Is the plan current?
  • Have circumstances changed without necessary amendments to the documents?
  • Has the ownership of the business changed in any way?
  • Do the documents require the acquisition of life insurance to fund a buy-out on death or disability?
  • Have the policies been purchased? Are they active and in-force? Are the correct beneficiaries listed? Is the face value of the policies sufficient? Too much? Not Enough?
  • Has there been a value placed on individual shares or units of the company? Is the value accurate? Too high? Too low?

The Annual Business Legal Check-Up will review these issues and recommend changes that may be needed so that a smooth transition can occur after the death or disability of an owner.

In the event that a plan is not in place, the Annual Business Legal Check-Up can suggest the best way to implement a plan given the peculiarities of the individual business and structure of ownership.

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