How do I plan for Business Succession?

 

Most business owners want the business they've worked hard to establish to continue to thrive when they leave, whether it's in the hands of a family member or a new owner.  A succession plan will secure the future of your business. Here are five key components in planning business succession:

 

• What is a succession plan?

A succession plan is a strategy which determines the best way for you to exit your business while ensuring the business continues. The plan determines who will take leadership and/or ownership of the business when you leave. There are two main options to consider when developing a succession plan:

 

• Retention planning - keep it in the family:

Many owners choose to keep the business in the family when they leave. If you plan to transfer your business to a family member you need to consider the legal obligations as well as the impact on family relationships.

 

• Buy-sell planning:

Buy-sell agreements are legally binding contracts which control when owners can sell their interests, who can buy an owner's interest, and at what price. They are mostly used to ensure the smooth continuation of a business after a potentially disruptive event, such as an owner's retirement, incapacity, or death.

 

• Do I need a succession plan?

A succession plan is essential to securing the future of your business. Without a plan, the future of your business will be left to chance once you've gone. With so much at stake a succession plan is vital and will help you to:

 

-  maximise the value of your business if you decide to sell;

-  unlock that value by enhancing the marketability of your business; and

-  exit your business with maximum profitability and the foundations laid for its continued success.

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• How do I develop a succession plan?

There are no rules about what your plan should cover or the level of detail it should contain. Among other things your plan will depend on your objectives, family situation, financial position, health and age. To be successful a plan should be realistic, workable and developed with input from groups and individuals who have an interest or share in the business. You should also talk to your business advisors such as your accountant, lawyer and financial advisor. Here are a few questions to consider when developing your succession plan:

 

-  Who will be your successor?

-  How much is your business worth?

-  What sort of management strategy should you adopt for existing staff to ensure a smooth transition?

-  How will your departure affect key business relationship such as suppliers and major customers?

-  Do you need to establish an estate?

-  Do you need provisions for active and non-active family members?

-  How much income do you need to retire/leave the business?

 

It's important to ensure that your plan is realistic and achievable. Once you've designed the plan, it's a good idea to set a timetable for completion and to schedule key milestones along the way to help keep you and your successors on track towards a smooth transition.

 

Corporation, LLC and Partnership Formation - Which is right for my business?

 

Before you can decide how you want to structure your business, you'll need to know what your options are. Here's a brief rundown on the most common ways to organize a business:

-  Sole Proprietorship

-  Partnership

-  Limited Partnership

-  Limited Liability Company (LLC)

-  Corporation (for-profit)

-  Nonprofit Corporation (not-for-profit)

-  Cooperative

 

• Sole Proprietorships:

A sole proprietorship is a one-person business that is not registered with the state like a limited liability company (LLC) or corporation. You don't have to do anything special or file any papers to set up a sole proprietorship -- you create one just by going into business for yourself.

Legally, a sole proprietorship is inseparable from its owner -- the business and the owner are one and the same. This means the owner of the business reports business income and losses on his or her personal tax return and is personally liable for any business-related obligations, such as debts or court judgments.

 

• Partnerships:

Similarly, a partnership is simply a business owned by two or more people that hasn't filed papers to become a corporation or a limited liability company (LLC). You don't have to file any paperwork to form a partnership -- the arrangement begins as soon as you start a business with another person. As in a sole proprietorship, the partnership's owners pay taxes on their shares of the business income on their personal tax returns and they are each personally liable for the entire amount of any business debts and claims. Sole proprietorships and partnerships make sense in a business where personal liability isn't a big worry -- for example, a small service business in which you are unlikely to be sued and for which you won't be borrowing much money for inventory or other costs. 

 

• Limited Partnerships

Limited partnerships are costly and complicated to set up and run, and are not recommended for the average small business owner. Limited partnerships are usually created by one person or company (the "general partner"), who will solicit investments from others (the "limited partners"). The general partner controls the limited partnership's day-to-day operations and is personally liable for business debts (unless the general partner is a corporation or an LLC). Limited partners have minimal control over daily business decisions or operations and, in return, they are not personally liable for business debts or claims. 

 

• Corporations and LLCs

Forming and operating an LLC or a corporation is a bit more complicated and costly, but well worth the trouble for some small businesses. The main benefit of an LLC or a corporation is that these structures limit the owners' personal liability for business debts and court judgments against the business. What sets the corporation apart from all other types of businesses is that a corporation is an independent legal and tax entity, separate from the people who own, control and manage it. Because of this separate status, the owners of a corporation don't use their personal tax returns to pay tax on corporate profits -- the corporation itself pays these taxes. Owners pay personal income tax only on money they draw from the corporation in the form of salaries, bonuses, and the like. Like corporations, LLCs provide limited personal liability for business debts and claims. But when it comes to taxes, LLCs are more like partnerships: the owners of an LLC pay taxes on their shares of the business income on their personal tax returns. Corporations and LLCs make sense for business owners who either (1) run a risk of being sued by customers or of piling up a lot of business debts, or (2) have substantial personal assets they want to protect from business creditors. 

 

• Nonprofit Corporations:

A nonprofit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. A nonprofit can raise much-needed funds by soliciting public and private grant money and donations from individuals and companies. The federal and state governments do not generally tax nonprofit corporations on money they take in that is related to their nonprofit purpose, because of the benefits they contribute to society. 

 

Cooperatives:

Some people dream of forming a business of true equals -- an organization owned and operated democratically by its members. These grassroots business organizers often refer to their businesses as a "group," "collective," or "co-op" -- but these are often informal rather than legal labels. For example, a consumer co-op could be formed to run a food store, a bookstore, or any other retail business. Or a workers' co-op could be created to manufacture and sell arts and crafts. Most states do have specific laws dealing with the set-up of cooperatives, and in some states you can file paperwork with the secretary of state's office to have your cooperative formally recognized by the state.

 

Why choose business dispute resolution through mediation?

 

If you’re a business owner or involved in a venture or organization, you’re well aware that conflict can rear its ugly head in your professional world.  It could take the shape of a contract dispute, a dispute over a verbal agreement, or perhaps a conflict with or within your labor force.  You might need a “divorce” from a longtime business partner and friend. And if you’re close to any of these points, you and your opposing parties may only see one path going forward: a long, expensive, public and arduous litigation process. Did you know Mediation is another option?  One that could save you time, cost and possibly help you preserve important relationships?  Consider the situations mentioned above.  In a business divorce, a Mediator can assist the “divorcing partners” in determining the terms of the buy-out, including price, terms of a buyout and non-compete requirements.  In a contract dispute, a Mediator can help both parties reach a solution and decide whether or not to continue a business relationship. 

 

Mediation can provide you with:

-  Cost savings

-  An efficient process

-  A confidential outcome

-  A neutral third party skilled at resolving disputes

-  Flexibility

-  Potential of preserving your business relationships

-  More control over the process and the outcome

 

What are the types of Trademarks?

 

There are actually several different types of trademark protection available to businesses. The rules for each of these types vary slightly, but generally adhere to a few basic principles.

 

• What is a trademark or service mark?

A trademark is a word, phrase, symbol or design, or a combination of words, phrases, symbols or designs, that identifies and distinguishes the source of the goods of one party from those of others. Common examples of well known trademarks would include Xerox, Exxon and Starbucks. A service mark is the same as a trademark, except that it identifies and distinguishes the source of a service rather than a product. For example, a company such as Google may brand certain products with a trademark, but use a service mark on the internet searching service that it provides. Trademarks legally conflict with each other if the use of one trademark causes confusion as to the product or service being offered, or as to the source of the products or services being offered. Generally, whoever used the trademark first owns it, and any subsequent users who cause confusion as to the products or their source will be forced to stop using the mark and may have to pay the trademark owner damages.

 

• What is trade dress?

Some brands don't just use a word, phrase or symbol to market their product, they also use distinctive packaging. The use of distinctive packaging is what is known as "trade dress". Trade dress isn't simply limited to boxes, but can include distinctive use of color, shapes and even décor. The goal of trade dress overlaps significantly with the goals of trademark law - to identify goods or products through distinctive features and reduce customer confusion. Accordingly, trade dress can often be registered as another types of trade- or service mark and receive protected under federal trademark laws.