Succession plans are normally connected with retirement, but they serve an essential role in the beginning of a business lifespan. Business owners expect their entities to last, especially after enduring the risk, work, and sacrifice of starting a company. However, if something unexpected happens to you or a co-owner, a properly written succession plan will help reduce headaches, cost, and drama. As the impact of an owner-exit grows, so does the need for a well-written succession plan.
It's important to keep in mind that the goal for the plan will differ if the business is owned by one person compared to one with multiple owners.
Succession Plan Goals for a Business with Multiple Owners in Alaska
When a business loses one of its owners, or when an owner believes their time in the business has come to an end, this should trigger a company's succession plan. Bear in mind that the succession process will differ between an LLC and a Corporation. Having business legal counsel that will help you understand the structure of the business entity will help determine the succession planning options.
There will be many choices to consider before a succession plan is drafted as each owner may have different goals. First, everyone will have to agree on how the exiting-owner's equity will be distributed. Will it be offered to other owners for purchase? Can it be offered to a family member of the exiting owner? Who will have the right of first refusal? How will the equity be calculated? What types of events can trigger the buyout? All these questions will need to be taken into consideration.
There are also the questions surrounding the continuity of the business. If the business is to survive the exit of an owner, documents related to operation and structure must be addressed, such as List of Officers with the Nevada Secretary of State and business insurance coverages. If the business is to be dissolved when the succession plan is triggered, then the proper channels must be taken to execute the dissolution process.
Succession Plan Goals for a Business with a Single Owner in Alaska
Creating a succession plan as a sole owner of a business can be daunting. With so much to take into consideration, where do you even begin? A good place to start is addressing the goal of your succession plan. Is the goal for your business to survive your exit or will it be to sell the company to the highest bidder? There will be many risks and opportunities to weigh, and these things can certainly change with time. With that in mind, it's time to start addressing who can succeed you. This can be a family member, an employee, or a separate third-party entity.
Not every business owner wants to transition their business in the same way or at the same time, so the timing of the succession will also have to be planned out. This can happen all at once or gradually, with certain criteria being met over time. Likewise, your successor can obtain the business through purchase, gift, or sweat equity. Each of these options has its own tax implications which should be considered before moving forward.
The transition will also have its challenges if the successor is not already part of the company. While the successor gets up to speed on the business, it can be helpful for the exiting owner to remain on the team as a partial owner, consultant, or employee. For businesses that are family owned or controlled, the matter of succession introduces emotional issues and may widen the circle of stakeholders to include non-employee family members.
Preparing Your Succession Plan
Developing a business that perseveres is something that motivates many entrepreneurs. A business working without a succession plan can have blind spots for disruption, uncertainty, and jeopardizes future competitiveness. Every step in creating a well-written succession plan will require legal guidance along with tax planning. Having an experienced business attorney, and a tax advisor, will be beneficial in developing a well-written succession plan from the start. A good succession plan will cover many different aspects, both legal and non-legal, aiming to give business owners piece of mind.