Dear Alex:
My husband and I are anticipating retirement from our business within the next five to 10 years. We have adult children who work for us and run most of the day-to-day operations, who we anticipate will take over the business when we retire. What do we need to do in order to be ready for this change?
The process you are describing is called business succession planning, and as the baby boomer generation reaches retirement age, it has become a very important field of law. The succession planning process involves elements of estate planning, tax law and business law, each working in conjunction with one another. While there are countless considerations and variable factors that each business needs to independently account for, here are a few of the basic issues to keep in mind.
Frequently, the current business owner (the first generation), is relying on the continued operation and success of the business for both the source of their retirement income, and the future financial security of their children, grandchildren and long-term employees. Furthermore, in the unlikely event of a worst-case-scenario such as the death of an owner, the continued survival of the business remains critical for most of the same financial reasons as with a planned succession of ownership.
The first element of a successful succession plan is called a “buy-sell agreement,” or sometimes an “agreement among shareholders.” This is a contract between the current business owners that delineates how to proceed when one of the owners dies, gets a divorce, or wants to dissociate from the business for other reasons.
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