By David Kronenfeld, Cotney Construction Law.
A good business succession plan finds its roots in a solid operating or shareholder agreement. Establishing baseline rules for who has voting interests, who can transfer their interests in the company, what happens if a partner dies, etc. all occur in the foundational documents of a company.
In addition to a solid operating or shareholder agreement, some of the common components of business succession planning include buy-sell agreements, gifting, an M&A transaction, employee stock option plans, management buy-outs and key-man life insurance.
Too often business owners are afflicted by the unknown unknowns – the business owner whose partner gets a divorce and now the ex-wife has a say in the business, the son who takes over management, goes to Vegas and gambles away “his inheritance”, and father needs to step back into the business. This is why a good business succession plan won’t rest on any single document, but rather is a holistic approach to providing “rules of the road” for any of those unknown unknowns whether they crop up in the first month of the business or one month away from the sale of the company you’ve spent much of your adult life building.
Author: David Kronenfeld is an attorney at Cotney Construction Law, who focuses his practice on a broad range of transactional matters.
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Editor’s note: This article was first published on Cotney Construction Law’s blog and can be viewed here.
Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. Regulations and laws may vary depending on your location. Consult with a licensed attorney in your area if you wish to obtain legal advice and/or counsel for a particular legal issue.
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