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Home » Succession Planning Strategy For Small Business Partners

Succession Planning Strategy For Small Business Partners

June 27, 2011Small Business Planning

The correct approach to estate planning is something that is going to vary on a case by case basis depending on your unique situation, and with this in mind, let’s take a look at succession planning for small business partners.  If you are a partner in a small business your financial share in the business may represent the largest asset that you have.  When you pass away your partners are probably still going to want to remain in business, and it is likely that you feel the same way with regard to the passing of any of your partners.

If your family was to inherit your share of the business they may want to sell it, and the buyer may not be someone who has the best interests of your partners in mind.  Even if the buyer was well-intentioned, it is likely that the surviving partners would want to maintain control of deciding who owns a share of their business.

With this in mind, the way that small business succession is usually handled is through the creation of buy-sell agreements.  The two such agreements that we will take a glance at here are the cross purchase plan and the entity plan.  With the cross purchase plan each partner takes out an insurance policy on every other.  When one of them dies, the insurance company proceeds are used to purchase that share from the estate of the deceased.  Under the entity plan the business itself buys insurance on all the co-owners, and when one of them passes away the policy benefits are used to purchase the share of the deceased partner from his or her family.

The partners in the small business will have to get together and work out the details of the agreement which is going to include evaluating each respective share and working up a binding contract.  This is clearly a matter that is going to require legal expertise.  So, if you are interested in creating a buy-sell agreement, the first step would be to arrange for consultation with an experienced estate planning attorney who has a background in small business succession planning.

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Paul A. Kraft, Estate Planning Attorney
Paul A. Kraft, Estate Planning Attorney
Paul Kraft is Co-Founder and the senior Principal of Frank & Kraft, one of the leading law firms in Indiana in the area of estate planning as well as business and tax planning.

Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
Paul A. Kraft, Estate Planning Attorney
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