Every business that opens will close or change ownership. Whether through retirement, sale, failure, or death, your business’ status will change. Therefore, you need a business succession plan and to consider the following issues in transferring or closing your privately-owned business.
Value the business.
Appraise or negotiate the business’ value. A certified professional accountant can help you do this.
Closing a business.
If your business is not churning a profit, does not have value or there are no buyers, or you want to try something new, you should consider closing the business. If you decide to close, either as a sole proprietor or through partner agreement, make sure to get the agreement in writing or to follow the wind-up procedures in your operating agreement. Choose a specific day, three months or farther in the future as your official closing date. You can “close the shop” earlier, but still must complete the wind-up procedures such as filing with the state and filing taxes.
Debt from your business.
Regardless of your business entity, you can be personally liable for unpaid state and federal income and sales taxes. Other debts depend on the debt’s contract. Did you personally guarantee the loan? Did you sign in your own name or on behalf of the business? If you are severely under water and unable to liquidate your business, consider filing personal bankruptcy.
Have a business partner? Consider a cross-purchase agreement life insurance policy.
If one partner dies, the life insurance will allow the other partner to buy the deceased partner’s share. The payout for the share is then given to the deceased partner’ estate as payment. Keep a written or operating agreement clarifying who pays for the policy, who the beneficiaries are within the business.
What if you have multiple business partners? Consider an entity purchase agreement.
This life insurance is bought by the business and pays the business – the beneficiary – if the partner passes away. Then the partner’s estate will receive the value of the deceased partner’s share.
Selling your business.
Determine your business’ value. Then start advertising the sale. There are many websites where you can post your business. Also rely on your personal network to get the word out. you can do this through as well as through your network. You can also hire a business broker to help facilitate the sale.
Passing on your business.
If you have a business where multiple children are interested in inheriting the business, provide clear instructions of who will take over what in your will or trust and how other heirs will be compensated. You can also include a buy-sell agreement where non-active-in-the-business heirs must agree to sell their shares. Most legal professionals recommend picking a single successor, for the sake of simplicity and clarity and to encourage the success of your business well beyond your time.
Disclaimer. As always, my column is not legal advice, instead merely insight into the law and legal profession. If you have a general question about the law or legal profession, please call or email me at 435.610.1431 or firstname.lastname@example.org.