Craig's Corner - Wealth Planning Insights

Monday, May 22, 2017

What Should I Include In My Nevada Business Succession Plan?

Family-owned businesses are the bedrock of the United States economy. A family-owned business is one that is wholly owned by a family and usually has two or more family members such as a father/mother, father/son or brother/sister involved in its management. It is estimated that family-owned businesses are responsible for 78 percent of US job creation and 50 percent of the country’s GDP.

Sadly, many family-owned businesses fail at the succession stage. More than 70 percent of these businesses do not survive transitioning to the second generation. Of those that do, half do not survive transitioning to the third generation.

If you are a family-owned business, having a clear succession plan will safeguard against transition failures. A Nevada business succession-planning lawyer can help you in developing an appropriate succession plan.

What is Succession Plan?

A succession plan is a written document outlining who will take over your business when the time comes. It is a blueprint highlighting who will take over the operations of the business, how the process will take place and over what period of time. Having a succession plan will go a long way in ensuring your business survives transitions so that your children and their children can benefit from the foundation you built.

What Do I Include in a Succession Plan?

  1. A Successor

    Clearly state who will take over the active management of your business. Some owners prefer to leave ownership and management to their family members while others who feel that their children are not ready to take over the business may give them ownership but have outside bodies, such as a trust, manage the business. Regardless of whichever you prefer, clearly state who will be actively managing the business.

  2.  Tax Plan

    In the event of the owner’s sudden death, a business with cash flow problems will have a hard time paying estate tax. Plan ahead. Talk to a tax attorney on ways to mitigate exposure to estate tax and capital gains tax.

  3. Ownership Changeover Process

    Succession is a process, not an event. Therefore, include a detailed process of how your preferred successor will assume ownership reins in the company. You may require the successor to complete training or hold the position on an acting basis until a certain point. If that is the case, specify when the successor will be ready to take full control.

  4. Buy/Sell Policy

    If your business includes multiple owners, a buy/sell policy where owners have the option of purchasing the shares of a deceased principal from his/her spouse will be an instrumental safeguard against major events such as the death or incapacitation of a principal.

    Remember to set up key person insurance as you develop your succession plan. This will ensure there are enough funds to finance a transition plan, absorb a deceased principal’s stock interest and recover revenue lost after a principal’s death. 

Similarly, ensure there is congruence between your business succession plan and your personal estate plan. The two should not be in contradiction to each other. Too often a business owner leaves his/her estate to one child then, in a separate succession plan, leaves the business to another child. This creates confusion and opens the doors for litigation.  

If you have a family business and want to prepare a succession plan, consult with Nevada business succession planning attorney S. Craig Stone II by calling (877) 800-3424. He will help you determine what options are best for you and your company. 

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S. Craig Stone II of Stone Law Offices, Ltd. serves clients throughout Clark County, Southern NV, Las Vegas, Henderson, Boulder City, North Las Vegas, Summerlin, Carson City, Reno, Washoe County, and Nye County. Also serving clients with asset protection nationwide.

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3295 N. Fort Apache Road, Suite 150, Las Vegas, NV 89129
| Phone: 877-800-3424

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