|Starting a Business - Business Agreements and Succession Planning|
Mike and Dave, close friends, start a business in 1972. As part of their business they create Labor Union Directories. The revenue is derived from selling advertising space to local businesses which will appear in the directory.
The business succeeds wildly and 20 years later, Dave and Mike find themselves expanding and realizing great profits. Mike passes away unexpectedly and without any succession planning or buy-out contracts signed by Mike or Dave, Dave suddenly finds himself in business with Mike's wife who has no experience in the business as a 50% partner.
All to often, we are confronted with conflicts between business partners or business shareholders where they failed to plan ahead by drafting partnership agreements or shareholder control agreements addressing buy-out and succession issues.
Are you prepared?
What if your business partner retires, sells her portion of the business, or gets a divorce?
Succession planning seeks to manage these issues, setting up a smooth transition between you and the future owners of your business. With family businesses, succession planning can be especially complicated because of the relationships and emotions involved - and because most people are not that comfortable discussing topics such as aging, death, and their financial affairs.
Nationwide statistics indicate that more than 70% of family-owned businesses do not survive the transition from founder to second generation. All too often, the business is doomed by family discord over the business transition or tax issues related to the transfer.
One important aspect of business governance is the fact that business management and business ownership are distinctly separate creatures. A business owner may elect to transfer management powers of a business to one person, perhaps a child, while transferring ownership shares of the business to many people, perhaps many children.
To make sure there's a smooth transition, it's important that business owners in limited liability companies, corporations and partnerships write a buy-sell agreement at the start of their relationship.
Additionally, proper planning may allow business owners to minimize taxes upon death through innovative transfer tax strategies. Our experienced business lawyers specialize in succession planning and can provide your business with invaluable advice about these tax strategies.
It is important to remember that not every agreement will be fitting for every business. Therefore, it is important to consult with a knowledgeable business lawyer regarding buy-sell agreements and succession planning issues.
FOR MORE INFORMATION ON FORMING YOUR
MINNESOTA BUSINESS CALL- Attorney Maury D. Beaulier
Minnesota Business Law Center
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