Business and Succession Planning

Business planning is an important topic to business owners. Most business owners are focused on getting things done so that their businesses can make money. While it is this full steam ahead mentality and drive for success that makes entrepreneurs successful, going forward without a plan can cause problems. On occasion, we all need to slow down, write down some goals and establish a plan. Doing so can make a business more efficient
and profitable.

There are several legal issues that certainly need to be addressed in a business plan. In particular, choice of entity, incorporation, licensing, and exit strategy are key elements of a successful plan from a legal perspective. Important legal documents that must be part of a business include bylaws, shareholders’ agreements and a buy-sell agreement.

The purpose of sound legal business planning is to protect you, the business owner, from common issues that arise throughout the life of a business and to limit the potential for expensive litigation.

Many issues have been addressed by the North Carolina Business Court that could have been avoided with proper planning. For example, in NRC Golf Course, LLC v. JMR Golf, LLC, the court ruled that an option to purchase is invalid if there is no definite price term or a sufficient method by which to determine the price term.

From a practical business planning standpoint, business owners must be careful in light of this application of the law. Specifically, if partners have an agreement that one will buy the other out if one wishes to leave the business, it is imperative that the agreement is clear on how the buy-out price will be determined.

A key aspect of business planning that is often overlooked is succession planning. A succession plan sets out the details of a business owner’s departure from his or her business and often helps avoid family disputes.

According to Ian Mount, small business expert for the New York Times, “[b]usiness owners who do not form a succession plan create a time bomb that can not only destroy their companies but tear apart their families. ‘A lot of families fight and fight until the business is gone,’ said Jim Clay, who heads the trusts and estates department at the law firm of Morrison Fenske & Sund in Minnetonka, Minn. ‘It eats up everyone’s inheritances.’”

Family businesses in particular face the succession issue in a very personal and emotional manner. It is important that a specific plan is in place that sets out who will control the assets and management of the business and how the transition will occur.

In order for any business plan or business succession plan to be effective, a business owner should obtain the advice and guidance of a lawyer and a CPA. There are substantial legal and tax hurdles involved in business planning. Proper planning throughout the life of your business can make things run smoother and allow you to spend more on the important stuff–making money!