A business plan is a document which contains information related to the business, such as:
- Guidelines; and
Businesses must follow these plans in order to accomplish their main purposes. Business plans are typically created prior to a business being started.
It is common, however, for business plans to be reworked or re-implemented at a later date as the business evolves and faces new challenges. Having a business plan is considered an essential step for the success of any business, especially a small business.
Effective business plans should be clearly drafted and should contain information which will help the business operate smoothly and efficiently.
What Should be Included in Business Plans?
Thorough business plans should include information including:
- A clear statement of the overall purpose and mission of the business;
- Descriptions of specific business goals;
- Guidelines regarding business conduct and standards;
- Information regarding potential members and other important parties, including:
- names; contact information; and
- Instructions regarding:
- loans; and
- various other business expenses and financial matters;
- Provisions regarding how to resolve:
- business conflicts; breaches of contracts; and
- other various legal disputes;
- Instructions regarding business succession, or the sale or transfer of a business as well as
- business dissolution; and
- Change of leadership procedures.
It is ideal if a business plan provides a clear map of where the business is headed and how it will develop. This applies especially in the first few years of business operations, when a business is considered at its most vulnerable and risky state.
What is Business Succession Planning?
Business succession planning is a process by which long-term business needs are identified and addressed. One of the main concerns with business succession planning is to provide for the continuation of the business operations if the owner or manager retires or suddenly becomes incapacitated or passes away.
This may occur in several ways, including transferring leadership to the next generation of family members or by naming a specific individual to become the next business owner. It is advantageous to have a business succession plan in place.
This type of plan provides several benefits for the business, including tax breaks and not having a gap in business operations. A business succession plan is a document which is formally recorded and is typically drafted by an attorney.
Business succession plans are similar to contracts in that they have a binding effect on the parties who sign the plan and consent to it. One of the main advantages of having a business succession plan is that the organization will be much better prepared to handle unforeseen circumstances that may arise in the future.
Business succession planning involves long-term issues, including:
- Dissolution; or
- The transfer of ownership rights to another individual.
Business succession planning is used to answer the question of what should happen when the current owner is unable to continue leading the business. Due to this fact, business succession is often used to address future business sales.
Although the sale of businesses may result from long-term planning, it is often common that sales of a business result from unforeseen events. One of the more common examples would include a loss of profit.
Because of this, it is important to anticipate putting a business up for sale in the event that the sale of the business is required. Making the necessary preparations at the outset can make the process much easier in the future.
A business owner should view business succession as a process, rather than a single document or event. A business owner should begin creating their business succession plan during the initial phases of the business start-up because it is important to have the business succession plan drafted prior to retirement or a required sale.
What Should be included in a Business Succession Plan?
Well thought-out business succession plans will be both broad in scope and specific in instruction. They should include numerous provisions to address concerns in addition to who takes over ownership of the business.
Business succession plans should include the following:
- Approximate time frame or date when the succession will begin;
- Provisions for what steps should be taken in the event of the unexpected incapacitation of the owner, such as severe illness or death;
- The name of an individual who will serve as a replacement as well as how long their responsibilities will last;
- Naming who will be the next successor or guidelines for how an election should occur and instructions to ensure a smooth transition; and
- A strategic plan for the business after the succession takes place, including any new revisions to current policies and management structures.
The previous list provides only a few suggestions which demonstrate how complex a business succession plan may be. This is the reason why it is typically necessary for an attorney to draft the final business succession plan document.
What Kinds of Legal Issues Arise in Connection with Business Succession?
There are numerous legal issues which need to be addressed when an individual is creating a succession plan. Common issues which arise in connection with a business succession plan may include:
- Choice of successor. If a business succession plan does not clearly name the succession, disputes may arise;
- Property distribution. If there is any property in the name of the previous owner, this will need to be addressed so that the property can be distributed upon or during the transition;
- Type of business form. Each type of business has different requirements for succession. For example, if s business is a corporation, the previous owner’s name must be removed from the
- Articles of Incorporation and replaced with the name of the successor;
- Tax issues. Any outstanding debts, taxes, or unfinished business must be resolved. If the owner has passed away, there may be issues with death taxes;
- Benefits. The plan should address whether the business will continue to provide benefits after the owner has retired. For example, it should address:
- health care; life insurance; and
- retirement pay; and
- Employment contracts. If any ongoing employment contracts exist, these must be honored so as to avoid employment law disputes. For example, if there is to be a change in management structure, it must take into account any provisions contained in the employment contracts.
How Are Disputes Involving Business Plans Resolved?
It is not uncommon for disputes to arise related to the terms of a business plan. If these disputes are prolonged or interfere with business operations, they may require a lawyer to resolve.
A small business dispute may result in a lawsuit requesting a damages award to compensate the plaintiff for financial losses related to the dispute. In some cases, a court may require the parties to attempt to resolve their issues using alternative dispute resolution, or ADR.
ADR allows the parties to resolve their issues outside of the traditional courtroom. These processes may be used to resolve any disputes and the parties may choose to use this method as a resolution prior to filing a lawsuit.
Do I Need a Lawyer for Business Succession Planning?
It is essential to have the assistance of a business lawyer when engaging in business succession planning. Business succession planning requires attention to detail as well as a working knowledge of employment laws and business laws.
Because of this, it is helpful to have an attorney when drafting a business succession plan. Your attorney can provide you with advice regarding the laws of your state, draft your business succession plan document, and represent you in court should any disputes arise related to the plan.