Business Perpetuation Planning - A Must-Have for Every Business

Other than Estate Planning, the most neglected area of personal and business financial planning is the establishment of a perpetuation plan for your business. Most small business owners are so consumed by the day-to-day activities of their business that they often neglect or fail to see the need for a well thought out perpetuation plan. Similarly, owners of family businesses assume that the next generation will just “take over” the operation of the business. However, a successful business must make an effort to tie together its business plan with the income and estate planning goals of its owners and key employees. A business that ignores these considerations may miss out on a great opportunity as well as opening itself up to problems that threaten continued growth and, ultimately survival.

A well-formulated perpetuation plan normally will include buy-sell agreements either between the company and its owners or among the owners themselves. Income and estate tax considerations for both the entity and the owners are taken into consideration in choosing which type of buy-sell agreement will be utilized. It may also be possible to incorporate what is known as a “Wait-And-See” buy-sell agreement which allows the parties to wait until the triggering event to determine whether the entity or the remaining owners will be the purchaser. Life insurance is often an integral part of a successful perpetuation plan so that liquidity will be available to fund the purchase of the terminating owner’s interest. Many business owners are creating limited liability companies that act as holding companies for business interests and other investment assets. Ownership interests in the limited liability company can be gifted to family members by the business owner which allows the transfer of ownership of assets in a tax-friendly manner but often allows the business owner to maintain operating control of the business or investment asset.

As you can see, there are many aspects to a successful perpetuation plan. We would be glad to assist you with your perpetuation planning needs. Also, we would be glad to provide you with our brochure entitled “Financial Planning for Your Business” which discusses, among other things, perpetuation planning.

This publication is for general information only and is not intended as formal legal advice. If you have any questions or need assistance, please contact Curtis & Curtis, P.C.

Curtis & Curtis, P.C. is a full service law firm located in Jackson, Michigan providing superior legal services and advice to individuals, families and businesses throughout mid-Michigan since 1901.