Photo / Courtesy, J.M. Arbour
Jac Arbour
Updated: August 5, 2024
How to make sure your business is still around when you're not
By Jac Arbour, J.M. Arbour Wealth Management
It takes a lot to build a business, especially from the ground up. But that is exactly what many people in Maine have done. Maine is especially rich in its sheer number of small businesses, both first-generation and older.
It is normal for small business owners to be laser focused on the growth and development of their businesses. We have all heard the story about the cobbler whose children have no shoes.
Successful small businesses are often too busy to pay much, if any, attention to their business exit or succession plan. Regardless, now is the time to get serious about planning the next steps for what you have built. If not, you leave your accomplishments to the winds.
It is easy to have blinders on about our own mortality. Still, the pure fact is, at some point, either the next generation will step in, the business will be sold, or it will end with our death — these are really the only options.
So, the question is: What, specifically, do you want to happen with your business after you pass away?
Would the business survive without you?
If the answer is no, it is possible that your business should be transferred while you are alive, with you at the forefront of the transition. If this is the case, consider taking the initiative sooner than later, given the fact that a transition can take months or even years.
If, on the other hand, the business is a well-oiled machine that would survive without you at any moment, other considerations can be made.
Often, the component of someone’s legal plan that is most often neglected is their legal interest in a business. Whether it is a personal business, membership in an LLC, or stock in a corporation, this ownership is an asset that needs to be addressed.
If your ownership is subject to a controlling business plan, like a buy-sell agreement, an operating agreement, by-laws, or another contract, then your will will have no effect on your interest in the company. If the succession of your ownership in a business is not outlined in your business documents, however, then your ownership is likely to pass through probate and, thereby, your will.
A will is a powerful tool that allows you to control the distribution of your wealth in many ways. Nicholas Tomso, founder and CEO of Rune Law in Gardiner, advises that “when using a will to outline the distribution of your business interest, it is important to consider your goals for your beneficiaries, your business, your employees, and if applicable, your business partners.
To be legally valid under Maine law, a last will and testament, or simply a will, needs to be written, signed and witnessed by two individuals. Be sure to do this, and if you ever edit or amend it, ensure it is properly dated, signed and notarized.
Whether you are using a will or a business plan to control your business succession, the important thing is to have written documents in place to control the distribution of your interest.
Tomso also warns that “failure to provide guidelines and instructions can result in conflict among your business partners, beneficiaries and family. Businesses that lack proper succession planning are inclined to experience unnecessary litigation, extended timelines and needless costs.”
In the end, you have already traded your time to build the business you have today. The chance that you will be less busy tomorrow, that you will have extra time to consult with professionals who can design and align your business succession plans, is slim.
There is no better moment than now to protect what you built and ensure that tomorrow will be just as fluid as today — whether you are here or not.
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