One of the best reasons to incorporate is so that your business becomes an asset that you can transfer to the next generation. A well-organized corporation can be the primary source of wealth for families. Yet many small business owners don’t take the necessary step of following up their incorporation with succession planning for the business.
If you are the sole shareholder of a corporation, or the primary directing mind behind a corporation, then you need to have a plan in place. In addition to your own Will and the selection of an Estate Trustee, you need to have written documentation that sets out your directions so that your business does not lose value in the days following your death.
Those plans may include a separate Will for the corporation, key-man or business continuation insurance, powers of attorney and management or sale instructions. This planning will ensure that the business that has taken so much of your time and energy becomes something of value to those you leave behind, instead of a burden.
Businesses that don’t have a succession plan in place tend to devalue quickly upon the death of a principal. Instead of doing business during this critical time, companies stagnate, while friends, family and employees struggle to decide what happens next and try to figure out how to run things. In the event that the business is to be sold, by this point it will have lost much of its value. If the business is to continue to operate, it may have suffered a significant hiccup in operations that could jeopardize its continued existence.
Putting together a solid business succession plan will require a good partnership between you and your legal counsel. It will require some frank discussion about your intentions, your appetite for risk and some detailed planning regarding the inner-workings of your corporation. It will take some time and some money, but it is vitally important if your business is to have value after you pass away.
If you have any questions, please contact us.