Engaging in the process of business succession planning can be extremely fulfilling as you think about your legacy and how you will pass on the company you have worked so hard to build. Often the first step involves a conversation with any of the financial professionals that the business owner has a relationship with, such as a CPA or an attorney.

Valuing the business is one of the next steps to determine the appropriate method of what the company is worth. There are a few different methods that can be used to actually transfer a business once it has been sold or once internal methods of transfer have been determined.

A cross-purchase agreement, for example, can be formed when each partner takes out a policy on each of the other business partners. Every single partner is the beneficiary and owner on the same policy, meaning that when one partner dies the value of each policy is distributed to the remaining partners who then use the proceeds to divide the deceased individual’s portion of the business at a price that was previously determined.

Another option for a business succession planning transfer is an entity purchase agreement. In this method, the business purchases an individual policy for every partner and the business itself is the beneficiary and the owner of that policy. Upon the death of an owner or partner, the business then uses the policy earnings to acquire the deceased person’s ownership portion of the business.

Usually, it is a deductible expense for the cost of this policy, meaning that the business takes on all of the costs while also guaranteeing equity among partners. For more information about how to use business succession planning to maintain your legacy and ensure a smooth transfer of the company, set up a time to meet with an attorney who has a track record of helping other people do this successfully.

Want to connect your business plan with the rest of your estate plan? Talk to our trusted Pasadena estate law office now.

Post a Reply