If you own a business in Louisiana, it is important that you have a succession plan in place. This is true even if you don’t think that you will be retiring or giving up control of the company anytime soon. Let’s take a look at the process of creating a plan and how to identify your potential future successor.
Think about who is best suited to run the business
While you may have wanted to pass your company down to a son or daughter, that person might not possess the skills to do so. If you don’t have a family member willing or able to run your business, it may be necessary to transfer it to a group of key employees. Ideally, you will start grooming those individuals for their future roles as soon as possible. If there are no internal candidates to transfer the business to, you may need to consider selling it or simply shutting it down at some point.
Succession agreements should be in writing
It will likely be necessary to create shareholder agreements, buy/sell agreements or key employee agreements to ensure that a transfer of power is conducted smoothly. These agreements should specify how much an ownership stake in the company is worth and who can acquire an interest in the business. The company should be appraised at regular intervals to determine a fair share price.
An appraisal may also help to determine how much money might be needed to fund the sale or transfer of the organization from one owner to another. Executive compensation agreements and transactions conducted per the terms of a buy/sell agreement are typically funded with proceeds from a life insurance policy.
An attorney may be able to help with business succession planning tasks such as drafting a buy/sell agreement. Legal counsel may also help to create wills, trusts or other documents that may help to facilitate the transfer of a business from the current owner to a beneficiary.