Exits & Succession
Every business owner will eventually exit their business. The question is not whether they will, but how.
We work with businesses to put in place structures and plans that will facilitate an exit and/or an orderly succession from the owner to other trusted people while keeping the value of the business in tact. Exit and succession planning is the process by which the business owners put in place structures and plans that address common situations related to emergencies such as death or disability, succession through internal transfers to key employees, or transfers to third parties.
All businesses with two or more owners need to address emergency situations and put in place a buy-sell agreement. For example, owners generally do not want to be in business with the heirs of other deceased owners who were never involved in the business. At the same time, many owners in closely-held businesses are directly involved in the business day-to-day so that their incapacity or sudden departure would dramatically impact the company’s ability to continue. Finally, most business owners want to maintain a level of control over who might become an owner, and will not want other owners to be able to simply sell to an unknown third party without some first right of refusal option.
In such situations, a buy-sell agreement is an important tool for managing what will happen when an owner dies or wants to leave. Buy-sell agreements provide a framework for addressing the rights and obligations of owners to purchase or sell their equity interests to each other or the company when certain events are triggered. These triggering events can include situations such as the death of an owner, retirement situations, and voluntary transition to a next generation or third parties. In this way, for example, the death of an owner can result in a surviving owner having the right to use insurance proceeds to buy the interest of a deceased owner. The result is that the ownership stays with the surviving owner while the decedent’s family receives the life insurance proceeds.
Beyond emergency situations, owners need to carefully consider how they will pass the business on when they decide they want to retire. Often, an owner’s business is their primary asset. With careful planning, the owners can prepare the business and the structures in place to make the transition beneficial for themselves, the business, and others. These transfers might involve selling to an existing owner, to a key employee, or to a third party. As a part of this, the business may need to formalize the different aspects of its operations as a part of preparing the business for a transfer, or engage in a concerted growth effort so the value of the business is sufficient to support the owner’s retirement needs. Tools such as non-qualified deferred compensation plans and key-employee contracts can become useful tools to maintain continuity of the business, facilitate the business’s growth, and prepare the business for the owner’s eventual departure.
In short, successful exit and succession transfers do not simply happen, they require careful consideration of the needs of the owner and the business. We work with the business and owners, along with their advisors, to help put in place the legal structures that will facilitate such transfers. If you have any questions, give us a call.
“Doug is one of the best business attorneys I have ever worked with. He has a strong grasp of strategic business concepts so I trust his advice knowing that he keeps the big picture in mind. His counsel on a complex, three-party agreement was critical in protecting our investment when we co-developed a highly profitable software product. The agreement was referenced multiple times throughout the development/launch and disarmed possible disputes that could have potentially sunk our investment.
I have worked with Doug for four years and have never been disappointed in any of his work.”
– Greg, Manager Bookshark, LLC
“As a small business owner, we need an attorney who understands the unique issues that confront small business and the solutions to keep business running. We found that Doug met all these criteria. We would highly recommend him.”
– J. Aaron, Owner Starbridge Homes