Succession Planning

Succession Planning is the process of evaluating the business, family, income tax, gift tax and estate tax considerations in passing ownership of a business from existing business owners to the next owner. Though many succession plans focus on passing control and ownership to family members, many other plans involve the sale or other transfer of the business interests to non-family members such as managers or foremen currently working at the company, or outsiders with an interest in the business or profession, national or regional firms in the same industry or profession.

What differentiates succession planning from a sale of the business is consideration of the business owner's estate planning goals and dovetailing those goals with business and tax considerations. A good succession plan will aspire to accomplish all of the following:

• Provide for an orderly exit of the current owner from primary management responsibility
• Provide for continuing part- or full-time employment of the owner, if desired
• Establish a fair value for the owner's interest in the company
• Provide a method of paying that value to the owner on the terms desired, in a way that is also satisfactory to the buyer or other successor.
• Include consideration of the income, gift and estate tax implications of the plan to the owner, the owner's family, and the successor
• Meet family goals such as passing ownership and/or control of the business or certain divisions of the business as desired by the family members

Of course, planning for the series of transactions that make up a succession plan is one step, and implementing it is the second but crucial step that requires experience and expertise in numerous areas of law.