If you own your own business or are thinking of starting one sometime in the future, it is vital for you to think of succession planning. Whether you plan to sell your company or pass it down to loved ones after you pass, the plans you have in place dictate what happens to your business.
Most New Hampshire business owners are so caught up in the everyday demands of their company that they may not take time to think about what could happen to their organizations in the event of serious injury, illness or death. To keep your company intact and ensure a seamless transition to new ownership, consider the following pointers about estate planning for small business owners:
Separate business assets from personal
Small business owners can choose between several tax structures for their organizations. Sole proprietors have the option of using their personal assets to offset their business debts. To keep this from happening, you should inventory and label all assets and inform your family and successors about your wishes. Document your intent to prevent disagreements from arising and interfering with what you want to happen to your company when you pass or are no longer able to manage it.
Establish a buyout plan
One way some business owners fund their retirements is by selling their companies before they die. If you plan to leave your company to one or more people, you may benefit from including a buy-sell agreement in your estate plans. A buy-sell/buyout agreement is essentially a roadmap that details to heirs how to handle the transfer of ownership and management in the event of divorce, illness and death and other extenuating circumstances. It names successors, potential buyers and everything that must occur before qualified individuals can purchase shares or the company.
When implementing a buyout agreement, it is important to consider the tax ramifications. It is possible to pay taxes all at once or spread payments out over time. Failure to plan for taxes can reduce the amount of money you have available for any expenses that may crop up during the end of your life. When properly structured, estate plans that have comprehensive business succession instructions can make it easier for new owners and heirs to preserve company value, prevent conflict and mitigate risks.