Secure Your Business’s Future Success After You’re Gone with a Comprehensive Plan in NJ

Important Considerations for Business Owners who Want to Pass on their Business after their Death in Monmouth and Ocean County, New Jersey

You’ve spent years, perhaps even a lifetime, building a business with your business partner. You’re both incredibly proud of what you’ve done and you want to preserve it even after one of you dies. How can you do that? The answer is business succession planning. This is a process similar to what is commonly thought of when referring to estate planning, but for your business instead of your personal assets. With business succession planning, you can determine who will get your shares of the business when you die, how they will get those shares, and outline other important details such as business valuation. If you have questions about creating a business succession plan for your eventual death in New Jersey, our seasoned attorneys at Bronzino Law Firm can answer those questions and help you create a plan that leaves you feeling confident about your business’s success after you’re gone. You can reach us online or by calling (732) 812-3102  to discuss your case with one of our team members.

Leaving a Business to Partners vs. Heirs

When one of the partners dies, if their shares pass to their spouse, children, or other heirs, these individuals may not fully understand the business. They may come in with ideas about how to grow or change the business that are unrealistic, or unreasonable, or could even potentially hurt the business. They may have no interest in the business at all beyond making money from it. They may be willing to sell their inherited shares to the highest bidder, regardless of what that bidder might do to the business. Additionally, your business partners may not want to work with your heirs.

You can instead preserve the business by leaving it to a business partner who helped build it. They understand the business, its history, and its goals in a way that heirs may never be able to grasp. They know the challenges your business has faced in the past and this gives them the ability to look ahead and potentially foresee future challenges. They understand the most intricate details of the business, and the decisions you would have wanted to make, after many long years of working together in the business.

Advantages of Planning for Business Succession in New Jersey

If you avoid planning for business succession, your death could wreak havoc with your business and destroy your life’s work. By taking the time to think about the future and what you want to happen with your business after your death, even if it is uncomfortable, you can ensure a lasting legacy, reduced family conflict, and a business that seamlessly continues without you while honoring your legacy.

Ensure a Lasting Legacy

A spouse, children, or other heirs may not understand how meaningful your business is to you. They may have little to no interest in getting involved with your business or want nothing more than any income the business may offer. By leaving your business to your business partner, you leave the business to someone who cares about it as much as you do, who understands it and wants to see it succeed in the same way you do. Your business partner has worked closely with you in the business and understands the goals you envisioned for the business and can make decisions that keep the business moving toward those goals. This can help to ensure that your business serves as a legacy of your passion and determination.

Reduce Family Conflict

Without clear ownership, your family may end up arguing over who should inherit the business after your death. This can lead to conflict between children, between your spouse and your children, or others who believe they are entitled to own the business. By having a clear plan to leave the business to your business partner, you ensure that everyone is on the same page about what happens to the business, even if they do not necessarily agree with your decision.

Maintain Business Continuity

The death of a business owner can cause problems both inside and outside of the business itself. Employees may start to worry about their jobs and spend working hours on their resume or seeking other job opportunities. Customers may worry about the quality of the service or product now that the owner is gone or even have concerns that they may need to look elsewhere. A business succession plan that indicates what happens after you die can ease everyone’s mind.

By creating a clear plan about your shares passing to your business partner long before you die, you can give your employees job security. This will create a seamless transition for both your employees and your customers as everyone will know that not only is there a plan to keep the business going, but the plan involves someone who already knows the business inside and out, which means consistency and familiarity for everyone involved.

Planning for the Future of Your Business when One Partners Dies in NJ

Much like creating an estate plan for your personal assets, you can create a business succession plan that prepares for the death of any of the business partners in your business. This starts with determining what happens to a partner’s shares when they die. This may have been decided early on and included in some of the company’s formation documents. If not, it can be done now with the assistance of an attorney. Generally, most business partnerships require all the partners to agree on what happens to a partner’s shares when they die.

Once all the partners have agreed that their shares will go to the other partner or partners in the business, the next step is to create the legal documents that will ensure this happens. This may be a buy-sell agreement, a will or trust, or other method of transferring the business. One important matter to consider is having each business partner hold a life insurance policy on each of the other partners. The proceeds from this policy can be used when the partner dies to purchase that partner’s shares from their estate in a buy-sell agreement or to assist the estate or family in paying any estate taxes that may be associated with the business.

Key Legal Documents NJ Business Owners Need for a Successful Business Succession Plan

When you are creating a business succession plan, there are some key documents that may be necessary to ensure that your plan is carried out effectively upon your death. Which specific documents are required for your circumstance will depend on your plan, but a knowledgeable attorney can help you determine which documents you need.

The Crucial Role of Buy-Sell Agreements in Business Partnerships

A buy-sell agreement is a contract which outlines how ownership shares are transferred upon a partner’s death, disability, or retirement. This document is extremely important as it protects both the partners and the business’s future. This document can clear up conflicts between the remaining business partners and the deceased partner’s family, stipulate a purchase price to be paid for the deceased partner’s shares, and protect the business from an estranged spouse in the event of a divorce. It can also assist in avoiding Internal Revenue Service (IRS) scrutiny of the purchase as it outlines all the details, including the price to be paid and the triggers that allow the partners to purchase the shares.

It is also important to consider which kind of buy-sell agreement to use. There are asset purchase agreements, cross-purchase agreements, entity-purchase agreements, as well as others. In most cases, you will likely want to consider a cross-purchase or entity-purchase agreement. Cross-purchase agreements require the remaining owners to purchase a departing partner’s shares when the triggering event (retirement, death, etc.) occurs. Entity-purchase agreements require the business to buy back the deceased partner’s shares and also require the estate to sell the shares to the business.

The Importance of Wills and Trusts for Business Owners

If someone dies intestate, or without a will, their estate is distributed based on New Jersey’s intestate laws, including their business assets. This can lead to much confusion and conflict. However, a business owner can use a will or trust to address business ownership succession. It is important to understand the difference between a will and a trust, particularly when it comes to business shares.

A will is a document that indicates how you want your assets distributed after your death. It must go through probate, which can be a lengthy and complex public process. While your will is going through probate, the heir or heirs who inherited your business shares may be busy with probate or even be prohibited from working in the business right away. This can lead to business struggles and confusion.

A trust does not need to go through probate nor wait for the grantor’s death. However, in some cases, once a trust is established, it cannot be changed. Depending on the trust’s terms, it may also give control over the business shares before your death. Therefore, whether using a will or a trust, it is important to make sure you understand your choice and that you are comfortable with all the terms and conditions that come with it.

You can use your will to pass business shares to a business partner, spouse, or any other heir you choose. You can also use a variety of trusts, including irrevocable, revocable, Grantor Retained Annuity Trusts (GRATs), or Grantor Retained Income Trusts (GRITs). Which trust would be best for your needs will depend on many factors and you may find that consulting with an attorney is the best way to determine which of these would be right for you.

The Significance of a Professional Business Valuation in Determining a Fair Buy-out Price

A professional valuation is an objective estimate of the business’s value. Done by a third party with no investment or interest in the business, this valuation is based solely on the numbers. This is crucial for determining a fair buy-out price because the valuation does not simply look at the various numbers that a business has. Instead, a professional valuation will use one of several specific methods, such as market capitalization, earnings multiplier, or liquidation value, to determine the business’s current value. This ensures that the buy-out price is based on facts, using methods that are widely agreed upon, and allows everyone to feel comfortable paying the indicated price because it was calculated by an independent, unbiased third party rather than one of the partners.

Business Succession Planning for Retirement, Disability, & Your Eventual Passing

A thorough, well-written succession plan should include details about your future involvement and participation in the business. Business succession planning is not just about planning for your death; it is also planning for your retirement and even the possibility of becoming disabled. You’ll want to outline how you plan to participate in the business in either of those cases, as well as what kind of compensation you may expect. The plan should also address your death and how the company or partners will buy back your shares of the business from your estate. Additional details that should be included are the details of the business valuation, including the method used and information regarding any buy-sell agreements, wills or trusts that are in place to transfer business share ownership.

Ensure the Future of Your Business and Build a Strong Succession Plan with Assistance from our Attorneys in Brick, NJ

Whether you use a buy-sell agreement, a will or trust, or another method of passing on your business, your estate plan needs to include detailed information about that choice. Businesses and their assets are considered a part of your estate, and by clearly explaining the decision you’ve made in your estate plan, you help the court, your family, and your business partners understand what should happen after your death.

At Bronzino Law Firm, our accomplished lawyers can address this by guiding you through your options, ensuring you have all of the accurate and appropriate paperwork, such as buy-sell agreements or life insurance policies, and making sure copies of those documents are included in your estate plan. We can also ensure that the estate plan details what happens to your business shares so that your family and other heirs understand what will happen to the business and how that impacts the estate. If you have additional questions regarding leaving your business to a person or parties of your choosing in Middletown, Eatontown, Manchester, Toms River, Lakewood, Point Pleasant, Red Bank, Tinton Falls, Sea Bright, or elsewhere in Monmouth County and Ocean County, contact us today at (732) 812-3102  to explore your legal options.