If something happened to you, what would happen to your business? It is essential for all small businesses to have a business succession plan in place, whether you plan to retire soon or not. A business succession plan ensures that all parties understand what will happen to the business in the event of your death or incapacity.
Your business succession plan may include a Buy-Sell Agreement, which is a contract in which an owner’s share of a business is provided for upon a triggering event, such as bankruptcy, death, retirement, disability, etc.
Without such an agreement, the business could end up in the hands of the wrong people; your business could suffer irreparable damage as multiple parties contest their rights in a lengthy court battle; or, in the absence of a specified, ready buyer, your heirs may end up being forced to sell for far less than a fair market value, as they may need to find a buyer quickly.
Some of the more common ways to transfer ownership of a business include:
- Co-owner — Selling your shares or ownership interests to a co-owner(s).
- Heir — Passing ownership interests to a family member.
- Key Employee — Selling your business to a key employee.
- Outside Party — Selling your business to an entrepreneur outside your organization.
- Company — For a business with multiple owners, you can sell your ownership interests back to the company, then distribute to the remaining owners.
Each of these methods has their benefits and drawbacks; it’s important for you to discuss this with an experienced business law attorney and make sure that your succession plan is in place.