Business owners have special needs to make sure their personal estate plan matches their business legal planning.
Many entrepreneurs are familiar with typical legal documents to start their business. Common business formation documents include Articles of Incorporation, Articles of Organization, Business Name Reservation Forms, and other documents.
Business planning doesn’t stop there.
In addition to thinking about how your business will start, you also need to consider what will happen in the event of the business owner’s incapacitation or death.
This creates a Business Continuity Plan to ensure the business entity can smoothly follow your vision of how the business will adjust to the changed circumstances.
It is also important to make sure that your personal estate planning documents do not conflict with your business documents.
Abraham & Bauer helps business owners with their business estate planning needs.
Some of the documents that we can help with include:
A partnership agreement is made by the partners in a partnership and sets out how they will operate the business. Although a partnership agreement is not required, the partners will usually benefit by making one. If they do not make an agreement, then the default rules in the Maryland Revised Uniform Partnership Act will apply. These default rules may not be favorable to some or all of the partners. Making an agreement can help resolve that problem. Additionally, the process of making an agreement can benefit the relationship between the partners by encouraging them to address issues proactively, and by providing some certainty about how the business will be conducted.
The agreement can be brief or extensive, depending on what the partners want to include. For example, it could include provisions on how voting and management rights will be apportioned, how profits and losses will be allocated, and what happens if a partner decides to leave the business.
An operating agreement is to an LLC what a partnership agreement is to a general partnership. It sets out the various terms and conditions under which the business will operate. Although an operating agreement is not required, the LLC members will be subject to the default statutory rules if an agreement is not made. Unless the LLC members all agree with the default rules in the Act, then it is to their benefit to make an operating agreement.
Bylaws are a corporation’s guidelines for how it will operate. The bylaws can provide details about certain procedures, the structure of the corporation, and the duties of corporate officers. The bylaws are private and do not need to be filed with the State of Maryland. They are adopted by a majority vote of the board of directors and may be amended by the stockholders unless that authority is given to the board.
Business Succession Planning
Have You Created a Transition Plan for Your Business’s Future?
Recent surveys consistently show that between 50 and 65% of all business owners have not undertaken the important process of having a transition plan in place. Having that end game in mind can help the business owner with several key metrics in their journey as an owner.
A transition plan establishes flexibility in your business. It normally helps you build better operations, leads to increased profits, and results in positive tax outcomes. These factors remain whether the transition involves a sale to an outside buyer, a family member, or to employees.
Having a transition plan in place is a positive component of your operational document. It adds the last piece to the structure. A transition plan can minimize the economic impact of not having a plan should a crisis erupt in your or your business’s life. It minimizes time and provides peace of mind for you, your family, the other owners, and your employees.
A great transition plan also defines the role your business plays in your retirement and estate plans. Basic questions are:
- Do you intend to sell the entire business or a part of it and draw an income from your continuing partial ownership?
- If the company is a partnership, how will that relationship affect succession, retirement, and estate planning?
When developing this plan, be sure to your team including your financial, tax, and legal advisors from the outset so that your transition plan meets your goals and circumstances.
As a business owner, you owe it to yourself, your family, employees, and customers/clients to plan ahead.