Owning a business in Wisconsin is no easy task that comes with many responsibilities. Serving clients, hiring employees, managing payroll, building customer relations, and creating value for their family. With so many different tasks it is easy to see why succession planning can fall to the backburner.
However, all business owners must be able to answer the question: What happens to the business if you retire, become disabled, pass away, or want to transfer ownership?
By creating a business succession plan, you answer those questions and alleviate problems before problems occur. No matter the type of business you own, the right succession plan can protect the business you built as well as the people who depend on it.
What Does a Business Succession Plan Do?
The purpose of a business succession plan is to create a clear outline of what happens when ownership or management changes in the business. The succession plan can help address who runs the company, who can purchase ownership interest, how the valuations of the business will change, how buyouts will be funded, and what happens when an owner can no longer run the business.
For some Wisconsin business owners, succession planning means preparing a child or key employee to take over. For others, it means creating a buyout structure between partners or shareholders. In other cases, it may involve preparing the company for selling, setting up over time transfer of ownership, or possibly coordinating the business documents with an estate plan.
Creating the business succession plan is very important for business owners who have not reviewed their shareholder agreement, operating agreements, or buy-sell terms in a long time. All of your business documents from business records, ownership percentages, tax plans, and long-term goals should work together. If company documents are outdated, hiring a corporate lawyer reviewing the documents can help identify weaknesses before they can become disputes.
Verbal Agreements Are Not Enough
It is easy to believe like most small business owners that either a verbal or handshake agreement regarding succession is enough. However, it is important to remember that circumstances change and with them the understandings of those involved.
Circumstances such as death, disability, divorce, retirement, or even business disputes can cause friction between involved parties. Different parties can end up having different expectations which can cause many more disputes and rifts within the business. Having a written framework for business succession plans can make it so that everyone is clear on expectations which can help reduce strain succession puts on a business.
How Buy-Sell Agreements Help Prevent Disputes
Buy-sell agreements are some of the most versatile and useful tools in Wisconsin for business succession planning. It can help outline what happens to a business when an owner retires, files bankruptcy, becomes disabled, leaves the business, dies, or wants to sell an interest.
A strong buy-sell agreement may explain:
- Who has the right or obligation to buy an owner’s interest
- How the business will be valued
- When the purchase must occur
- How the purchase price will be paid
- Whether life insurance or other funding will be used
- What happens if co-owners cannot agree
Buy-sell agreements can become crucial to businesses going through ownership changes because ownerships disputes can become damaging to businesses very quickly. Without a clear framework for the transfer, a spouse or family member can receive an ownership interest but have no practical experience in the company to be able to carry out their duties. Any owners currently with the business may lack the legal ability or funds to buy out the estate. The conflicts that arise over control of the business, pricing, and time can become far more expensive in the long run.
These issues can also arise in purchase agreements, stock sales, asset sales, and transition documents. It is important to remember that the structure of the deal matters.
Business Planning and Estate Planning Should Work Together
For many Wisconsin owners, the business is one of their most valuable assets. That means business planning and estate planning should not be handled separately.
An estate plan may include a will, trust, financial power of attorney, healthcare power of attorney, beneficiary designations, and instructions for how assets should be managed or distributed. A business succession plan may address ownership, management, voting rights, valuation, buyout terms, and operational continuity.
If these documents do not align, problems can occur. For example, an estate plan may leave business interests to family members, while the company’s operating agreement gives other owners the right to purchase those same interests. A trust may hold ownership interests, but the company documents may not clearly address trustee authority. A power of attorney may be needed if the owner becomes incapacitated, but the business records may not match the estate planning documents.
Owners who want to protect both personal and company assets should consider how estate planning for entrepreneurs can work alongside succession planning.
Why Probate Can Create Business Problems
If the current owner of the business does not have a plan that is documented, it leads to probate. Probate, while not immediately problematic, can lead to added costs, create delays, and give a sense of uncertainty to the succession process.
While the business is caught up in probate, employees may begin to question who has the authority to make decisions. If there are other owners, they may be unsure as to how they proceed to buy the deceased owner’s portion of the business. Conflicts may arise within their family regarding what to do with the business if there are no other owners. Customers and vendors may be concerned with how the service or products will continue moving forward.
A succession plan can help reduce these risks by clarifying what should happen before court involvement becomes necessary. Owners who are worried about how assets may pass after death should also understand the basics of probate and how estate planning may help streamline the process.
The Risks of Waiting Too Long
Many owners delay succession planning because they are not ready to retire, do not know who should take over, or assume there will be time later. Unfortunately, unexpected events do not wait for the perfect time.
Waiting too long can create risks such as:
- Family disputes over ownership or control
- Business interruption after an owner’s death or incapacity
- Loss of key employees or clients
- Unclear company valuation
- Lack of funding for a buyout
- Probate, tax, or administrative complications
- Pressure to sell the business quickly
The earlier an owner starts planning, the more options are usually available. Succession planning does not mean you need to leave the business immediately. It means you are creating a structure that protects the company if something changes.
Succession Planning Protects More Than the Owner
A business is often more than an asset. It may provide income for a family, jobs for employees, services for clients, and value to the community. A succession plan helps preserve that value.
For family businesses, planning can reduce tension between children who work in the business and those who do not. For professional service businesses, planning can protect client relationships and licensing concerns. For companies with partners, planning can prevent uncertainty about control and valuation.
External business resources also recognize that transfers, sales, and closures require careful planning. The U.S. Small Business Administration advises owners to create a thorough plan when transferring ownership, selling, or closing a business through its guide on how to close or sell your business. Wisconsin owners should also keep business records current with the Wisconsin Department of Financial Institutions.
Talk With a Wisconsin Business Planning Attorney
Every business owner’s situation is different. A succession plan should be tailored to the company, the owner’s family, and the future of the business. The right plan may involve corporate documents, estate planning documents, tax considerations, insurance, valuation methods, and practical transition steps.
If you own a business in Wisconsin, now is the time to think about what would happen if you could no longer run it or if you wanted to transition ownership on your terms.
Contact Konstantakis Law Office to discuss a business succession plan that protects your company and your family.
This article is for general informational purposes only and is not legal advice. Reading this article does not create an attorney-client relationship.
