Preparing for the Virginia business planning process can be difficult without the help of a skilled attorney. Estate planning as a business owner can be complicated because of the necessity to protect the operation of the business as a major asset of the estate and source of income for a business owner’s family. Many businesses are governed by separate operating agreements or the owners may have buy-and-sell agreements that govern how an asset will be treated at the death of one of the owners. What can be difficult is to ensure that the business continues to run (in the event of the owner’s death) and to ensure that the asset itself is preserved for the business owner’s family.
The estate planning group works closely with transactional groups to ensure that estate planning for the business owner as an individual and succession and exit planning for the business are in place so that the business can continue to operate throughout the administration of an individual’s estate and the assets can be preserved to pass on to the business owner’s loved ones. Call a Virginia business planning lawyer today to see what you can do.
Preparing Business to Survive
Preparing for the Virginia business planning process means preparing for the business to survive. Business owners must plan for two scenarios. They should have a succession plan for the business, but they also have to prepare individual estate planning. Those two plans need to be coordinated to ensure that the business continues to run or is preserved for a loved one’s family, and the business itself is handled or passed on at death. For example, it is not uncommon for small businesses to pass on to one of the business owner’s spouses.
While the spouse may maintain ownership of the business, the remaining business partners are working and operating daily with the spouse of a deceased business owner which may inhibit the actual company or business from continuing operations. This may ultimately lower the value of the business for the business owner’s family. Planning individually for the business owner, making sure that an estate plan has been created thoughtfully around that major asset, but also creating a plan for the business to operate in the event that there is such a change of ownership is important for a business owner and their family.
Steps to Take After Owner Leaves
The value of a business is sometimes tied to a specific owner or a specific curator of contract. If a business owner passes away with the majority of those relationships, then the value of the business can fall. Another way that the value of the business can be impacted by an owner leaving, in any event, is a buy-sell agreement. Some buy-sell agreements are written so that, at the death of one owner, the remaining business owner can have the right of first refusal to purchase the business at either a low value, at book value, or that the business has to be sold to the remaining owner. In preparing for the Virginia business planning process, it is very important to review the buy-sell agreements, the partnership agreements and the operating documents of the business to see how the death of an owner will impact both the business side and the deceased business owner’s family side to ensure that that business or asset can be preserved.
How Business Planning Changes Based on Size
The process does not necessarily change based on the size of the business. There can be tax consequences or income tax opportunities, given the value of the asset of the business. But essentially, the planning process in Virginia remains the same. The business operating documents have to be coordinated with the individual’s personal estate plan and vice versa. An estate plan is created around how the business is passed on and how the business will continue to be operated.
Something common for business owners to think about is liquidity. During the time a business is managed, that business may not be a liquid asset, but the value of that business may be included in an individual’s personal federal estate tax – taxable estate. Therefore, one of the ways to work with business owners is to use life insurance to create liquidity in the estate to pay the taxes on the business when it is deemed that the business may not necessarily be a liquid asset, or it may not be sold easily.