When considering how to make sure your business continues to thrive, it’s important to remember that if you do nothing, your business already has a default plan in place: if no additional planning is done, your business is an asset of your estate and will be subject to probate.
Forbes’ article, “Business Succession Planning In The Internet Age,” says that there are four issues with this default plan. First, it can take years for a court to probate your estate. In that time, your business can dry up, when probate is finalized. Next, if you do not have an estate plan, your heirs may fight over who will inherit the business. Whoever inherits the business under the state’s intestate succession laws may also not be the best person to make sure your business will continue to grow and be successful. Finally, if you have co-owners, they might not like your heirs and could get into disputes with the new owners that harm the business.
There are two legal tools to look at when reviewing your options: a buy-sell agreement and good estate planning.
A Buy-Sell Agreement. This is a contract between the co-owners of a company that addresses a variety of business-changing events, such as when an owner dies. Rather than the deceased owner’s equity being a part of the assets distributed during probate, the buy-sell agreement can include an agreed-upon amount that will be paid to the estate, in exchange for the business repurchasing the equity. The purchase is often financed with a life insurance policy on each owner of the business.
Estate Planning. Instead of allowing your business to be subject to probate, a business owner can work with an estate planning attorney to make the business an asset of the owner’s trust.
With either option, be sure you note the important digital assets for the continued operation of your business. Your business’s digital assets may include customer lists, intellectual property and creative products. It is important to remember these tips on considering your digital assets:
- Understand the policies that impact your tools. Review your software provider’s policies on what happens if your company needs to name a new point of contact, pay bills differently, or be transferred to a different company, in case the unexpected happens.
- Security and redundancy. A company’s success requires owners and employees to keep proprietary information and client information secure. However, the concern for safety must be balanced with redundancy that considers which people will have access to digital assets and an understanding of what to do with them, if the owner or main management team is unable to tend to business as usual.
- Add digital assets in legal documents. Include an inventory of digital assets in your buy-sell agreement or estate plan. Be specific about who should get access to digital assets.
Creating a detailed plan as to who should have access to your business’s digital assets in case of your incapacitation or death, is an important part of succession planning.
Reference: Forbes (April 8, 2019) “Business Succession Planning In The Internet Age”