There are generally five possible scenarrios we encounter when working on Business Transition Plans. These ultimately determine who will be your best prospect to purchase the business at your retirement or early death.
- A Partner
- A Family member
- One of your key employees
- A competitor
- A Business Broker’s Prospect
Over the next few weeks we will address each one starting with partnerships.
When a partner who is still active in the business dies, your immediate challenge will be working with the heirs and their attorney. How solid is your relationship with them? Is there a way you can stay in control? How many questions are you prepared to answer? These are issues that are are critical to transition planning for your partnership.
Do you have a written partnership agreement?
This is a legal document that outlines each person's rights and responsibilities and includes provisions on how the organization will run. These agreements govern what happens when certain situations arise. Certain circumstances that are excluded, or not covered sufficiently, will trigger interference from the state. State law makes the final decision. Your deceased partner's estate becomes a transferee of the business. This means that heirs have a right to a share in the partnership's profits and losses despite providing no services or productive input.
When thinking through these issues put yourself in the shoes of the decedent. What would your family do without your income? Would they be forced to demand distributions from the business even if they were reluctant to do so? Would this be equally true for your partners family? Conflicts can arise even when families have been close social friends. Relationships are often stressed in the aftermath of an unexpected death.
Preparing for the Death of a Partner
It's important to have an agreement that addresses what will happen in the event of a death. A thirty minute meeting is all that is required to determine whether or not we can help you wade through all the issues. We will guide you down the path and show you how to overcome obstacles. If you think our services are valuable, we will gratefully work with you and make sure that both your surviving family and partner come out winners.