Building and maintaining a successful business is one of life’s greatest thrills and pleasures for many people. If you and your business partners are running a profitable business firing on all cylinders, imagining your company without its current leadership structure might be distressing and disheartening.
An important part of ensuring your company’s long-term survival is planning for the eventual absence of a business partner. We’ve previously written about the importance of planning for the death or incapacitation of a business partner. Without such plans, as we’ll explain below, your business partnership could become stuck in limbo for a long time.
Difference Between Estate Plans and Succession Plans
Both an estate and succession plan are critical for business owners. An estate plan maps out what will happen to one’s personal property in the event of death or incapacitation. A succession plan outlines how one’s business ownership will be handled after retirement, death, or incapacitation.
In an ideal world, a business partner would likely work until they are ready to retire and have trained their replacement or otherwise distributed their ownership interests to another entity. Or, if a business partner passes away before retiring, they made arrangements in their last will and testament to pass their ownership to a willing successor.
If a business partner dies with neither plan in place, however, the portion of the business the deceased owned will fall into the mire of Florida probate.
What Can Happen Without an Estate or Succession Plan?
After someone dies intestate (without an estate plan), someone close to the deceased must take charge of the estate’s assets while the court determines permanent ownership of the property. This personal representative may not be knowledgeable about or interested in helping run a business.
Even if everyone involved, including the personal representative, is on board to sell the deceased’s portion of the partnership, the probate process could delay or complicate such a transaction. State law requires a lengthy review of the deceased’s family members before determining who should get certain assets.
While everything is going on, the living partner may be required to set aside a portion of the partnership’s profits for whomever eventually inherits the deceased’s ownership. Uncertainty of the ownership structure can also make it difficult to sell some or all of the partnership to a third party.
By the way—the probate process for an estate lacking a plan can easily take six months or longer, especially if heirs disagree over some aspect of the estate.
Safeguard Against Chaos and UncertaintyTo ensure your business partnership’s success in the sudden absence of a partner, you should have a partnership agreement that includes, at minimum, a business continuity plan, succession plan, and buy-sell agreement. If those sound overwhelming or you don’t know where to start, our staff would be happy to speak with you about your options and how we can help provide your company with a high level of security.
Bryant Taylor
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