How Can I Transfer the Ownership of My Connecticut Business?
For a lot of business owners, their professional and personal lives can become intertwined. This is especially true for small business owners. Many of these businesses were founded by the current owner, while others may have been passed down through generations. Regardless of how a business was formulated, it is important to prepare for the next step by creating a succession plan. Business owners cannot run their business forever and must prepare for a future to avoid losing the business altogether. Delegating the livelihood you have created to another person can be difficult, but with the correct legal assistance, you can ensure that your business lands in the appropriate hands.
Who Can Take Over My Business?
There are five common ways in which a business owner transfers ownership of his or her company. Many business owners will choose a person with whom they are familiar to take on their business relations. This can include a current co-owner, a family member or heir, or a key employee who they think would best run the company. On the other hand, some owners wish to have an outside party, such as an entrepreneur, come in to bring new ideas to the table and avoid familial conflicts that can come along with passing your business to a relative. Businesses that have multiple owners can sell their ownership rights back to the overarching company.
How Can I Pass the Business On?
Each succession plan varies based on the company’s situation. Before selecting an individual or group to take over your business, you should understand the options available to you.
Below are common solutions for each type of business succession:
Selling to a Co-Owner: For businesses that have co-owners, many partners will sign a mutual agreement that states that one owner will buy the other half of the business from the other owner’s next of kin in the event that an untimely death or injury occurs. If the deceased owner’s spouse wishes to keep the company shares for financial reasons, a buy-sell agreement can be formulated to provide the spouse with adequate compensation while keeping the ownership in the hands of the co-owner.
Giving the Business to an Heir: Leaving a business to a family member can be a great idea if the individual is actively involved in the company. However, if the person has little experience, this can run the business into the ground. Some owners will leave their company to multiple family members, with each family member focusing on one area of the business. This is not always the best decision, however, since it can lead to division within the company.
Selling to an Employee: This option is similar to the process of selling to a co-owner. This succession plan will also include a buy-sell agreement. Within the document, the employee will agree to purchase the business based on listed situations such as retirement, death, or disability.
Selling to an Outside Party: This sales process varies for each business. The hardest part is finding a good fit. In the meantime, owners should get their business into its best shape in order to get the highest purchasing price. If potential buyers see apparent issues or necessary improvements, they will not be willing to pay a high price.
Selling Shares Back: As stated above, this option is only applicable to larger companies. Co-owners will typically create an entity purchase plan or a stock redemption plan. This allows the business to purchase life insurance on each of the co-owners. This money will be used toward buying that owner’s shares back in the event of death or disability.
Call a Stamford, CT Business Law Attorney
Planning for your business’s future can be intimidating, especially when you built it from the ground up. However, it is an unavoidable fate that all business owners must face at one point or another. Creating a succession plan with the help of an experienced attorney is the best way to protect your business. The attorneys at the Law Offices of Peter V. Lathouris, LLC can help you plan for the imminent future and help you shape your business’s fate. If you need assistance with the legal process, contact our Fairfield County business succession lawyers for a free consultation.