By answering the questions in the last segment and this one, you are writing the foundation for your Business Succession Buy Sell Agreement. In the last article, we discussed you and your interest in your business. Now let’s look at a different scenario. Let’s deal with the situation that you have business partners, co-owners.
1. What happens if your co-owner dies tomorrow? Would you readily accept his/her heirs as new partners? If you did not want them involved in business, you could always buy them out but where would the capital come from? Alternatively, you could try to freeze them out. Most likely a dispute would arise resulting in a costly, draining, time consuming legal battle.
2. If you did accept the deceased partners’ heirs in the business, how would you handle them if their ideas on the business differed from yours?
3. What would you do with business profits? Would you make them equal? Would you bonus them? Would you want to reinvest them?
As you can see, these are crucially important decisions to the success or failure of your enterprise. Much time, expense and emotional trauma could be avoided by having answers to these questions mutually agreed on beforehand. For as we all know, life happens!
DISABILITY
1. If a life threatening illness or severe accident occured to either you alone or co-owners, what would happen to the business?
2. What would happen to your salary? The IRS clearly states that to receive any compensation from a business, substantial services must be rendered. More importantly, while disabled, where would capital come from to support any compensation?
3. How would other employees feel about compensating you or a co-worker without performing any work?
4. Have you considered an Income Protection Plan (Disability Insurance)? Sadly, this is a vastly overlooked area. In fact, the likelihood for a disability damaging the business is far more prevalent than a premature death!
5. Have you invested in the New York State Statutory Disability Benefits Law?
6. Have you investigated Group Disability?
7. What would happen if your physician said you could never go back to work? Have you worked out a Disability Buy-out clause in your business agreements?
Answers to these questions MUST be worked out while all parties are actively working toward growth and the future success of your business. Luckily they can be worked out now. Consequently, its imperative to work with your accountant, attorney and financial advisor to deal with these issues NOW.