Morris & Bergen County Business Succession Planning Attorney
As any small business owner can attest, achieving success takes years of dedication and hard work, but let’s face it: no business can survive into the next generation without an effective leader at the helm. Nonetheless, many businesses are not prepared for a key person’s sudden death, illness or retirement.
At E.A. Goodman Law, LLC, we design business succession plans for closely-held and family-run businesses throughout the state of New Jersey as part of a comprehensive estate planning strategy. By understanding our client’s objectives, we work to protect their business assets and ensure their business will continue operating when they are no longer around.
Our legal team negotiates and prepares the necessary legal documents to ensure a smooth transition and works with a respected network of financial professionals to determine business valuations. Above all, we are dedicated to protecting the interests of our business clients and their surviving loved ones.
At E.A. Goodman Law, LLC, we work with our clients throughout the life cycle of a business which includes providing advice and guidance during the business formation phase and selecting the appropriate structure. This includes:
- Subchapter C-corporation
- Subchapter S-corporation
- Limited liability company (LLC)
- Partnership (including LLP)
- Joint Ventures
Our services include preparing foundational documents such as Articles of Incorporation and Bylaws, submitting necessary state filings, obtaining required business licenses and tax identification numbers. In addition, our legal team is also highly adept at negotiating and preparing underlying business agreements, such as operating agreements, partnership agreements, and shareholder agreements. We have a well-earned reputation for helping our business clients plan for the future and achieve their long-term goals.
The first consideration in creating a business succession plan is selecting a successor, which depends on factors such as the nature of the business, its basic structure, and the parties involved. In family-run businesses, disputes can arise among family members when there is no succession road map. Similarly, without a plan, conflicts can develop between partners and family members as they vie for control of the business.
In any event, the person who is most capable of running the business should be named to step into the leadership role. At the same time, it is crucial to establish guidelines for how the business will continue operating, which hinges on clarifying the roles of successors and establishing a procedure for resolving disputes.
Another critical component of any succession plan is determining the value of the business. In short, there are three methods for determining business valuation – the asset approach, the income approach and the market approach.
- Asset Approach – This is the most basic valuation method which evaluates the stated assets and subtracts the liabilities. In short, this is an analysis of the balance sheet that does not account for market conditions or goodwill.
- Income Approach – This approach combines an analysis of past earnings with projected future earnings. By evaluating future cash flow and capitalization, it is possible to determine both the present and future value of a business.
- Market approach – This method involves an analysis of other companies in the same industry that have recently been sold. Key determining factors of this approach include the size, duration and market risk of the business.
Regardless of which approach is utilized, the objective is to arrive at a fair and accurate business valuation so that your interests, as well as the interests of partners and family members, are protected.
Transferring the Business
In order to assure the seamless transition of a business, we also negotiate and prepare the necessary buy/sell agreements. Generally, there are two methods for transferring a business, cross purchase agreements and entity purchase agreements.
A cross-purchase agreement is usually best suited for businesses that only have a few owners, such as partnerships. In this scenario, each partner buys and owns an insurance policy on the other owners. If one of the partners dies, the face value of the policy is paid to the surviving owners as beneficiaries. The proceeds are then used to purchase the deceased partner’s stake in the business.
In an entity purchase agreement, the business entity purchases a single policy on each partner and the business is also named as the beneficiary of the policies. In the event that a partner dies, the business uses the proceeds to redeem the deceased owner’s share, which essentially raises the value of the surviving owners’ shares.
In sum, the best time to put a business succession plan in place is in when the business is being formed. In so doing, the potential of future conflicts among family members, partners and minority investors can be minimized.
Experienced Morristown Business Succession Planning Attorney
At E.A. Goodman Law, LLC, we take the time to understand the unique objectives of our business clients, the nature of other ownerships interests, and the role of family members. Knowing that the sudden death of an owner or partner can have a significant impact on a closely-held business, we help our clients create succession plans that will ensure the ongoing viability of their business.
Our legal team is committed to protecting our clients business and personal assets, as well as the interests of surviving loved ones. Now is the time to protect your life’s work with a well-designed business succession plan. Call our office or complete the contact form on our website to set up a consultation