When Wills Mean Business: Planning for Your Business’s Future
Planning for the future is not only necessary in your personal life, but also in your professional life, especially if you either own a business or invest in a business. Putting an estate plan in place early on, and keeping it updated to reflect changes in the business, can protect your business in the event of your death. Two South Florida examples illustrate the necessity of planning ahead for your business.
In November 2015, Pebb Enterprises LLC, based in Boca Raton, suffered the loss of two of its managing principals and five employees in an airplane crash. The plans put in place by the principals kept the company in business after the devastating event. In contrast, after the death of its president, Naples based Vantage Lighting was undervalued and dissolved, because the president died without a will.
An important consideration for estate planning with a business in mind is the concept of continuity. One of the primary goals of the estate plan should be for the transition to be smooth and uncomplicated, without any interruption in the operation of the business. Having an estate plan is all the more important when the business is a family business. Without a plan in place, the passing of a principal person in a family business can impact both the professional and personal lives of the principal’s business partners and heirs, particularly if a dispute erupts over the ownership and/or management of the business.
The first step when thinking about a plan for your business or interest in a business is to identify what type of ownership you have in the business. The type of ownership will allow you to make a more thorough and complete plan to protect your interest and to preserve the business after your passing. Three types of ownership–sole proprietorship, partnerships, and corporate entities–each require a different approach for estate planning.
With regard to a sole proprietorship, the business is wholly-owned by the one individual. This requires perhaps the most thought when it comes to estate planning because, as the sole individual in charge, you can unilaterally create the entire plan and dictate how it will be implemented. Having a specific plan as to who will inherit and run the business, or if the business is to be dissolved, how the dissolution process will occur and where the resulting funds will be placed (e.g., into a trust or into the estate), will help to diminish or eliminate legal struggles over the future ownership and control of the business. If you choose to keep the business running after your passing, how best to ensure the continuation of services to the business’s clients is an important consideration that an estate plan can be critical to effectuating.
If the business is owned in conjunction with others as a partnership, all of the partners should consider obtaining a life insurance policy for each partner, naming the other partners as beneficiaries. However, although the influx of money may help the partnership continue, it does not guarantee that it will, particularly if a dispute develops over control of the business. Discussing other types of insurance or plans for the future with one’s partners and creating an estate plan will guide and assist the surviving partners in continuing the operations of the business.
With regard to a corporate entity, the death of one individual is less likely to impact the functioning of the business. However, a dispute over control and ownership of the corporation itself may arise, as many corporations are owned by a limited number of people, and can include family members, complicating the issue. It is also important to take into account the type of corporate entity the business is owned through. There are many different types of corporate entities, and each has unique characteristics and thus distinct challenges when it comes to estate planning.
This article is intended to provide brief insight into how an estate plan can apply to businesses as well as personal concerns. Individuals interested in how this information will personally affect them should consult with an attorney. Do not hesitate to contact the attorneys of Chepenik Trushin LLP, who are ready, willing, and able to help with your estate planning needs.