What is a business transition A business transition can be defined as any change in the ownership or management of a business. This can occur when the stock of business is bought out. This commonly occurs when the buyer wants to obtain licenses held by the business as opposed to obtaining their own licenses or permits. This transition can also occur upon the retirement or demise of the owner or owners. With multiple owners the surviving owners may inherit the ownership but this is not a foregone conclusion. Without proper documentation addressing this situation the survivors of the owner such as a spouse,Planning for a business transition Articles children, parent, or other beneficiaries may inherit the ownership through operation of a Will of by law if there is no Will. Having family members or other beneficiaries suddenly become part owners may not be intended or preferred thus addressing this possibility should be pf paramount importance to the owners and can easily be accommodated in the corporate governance documents. There is an applicable famous saying that the failure to plan is a plan to fail. Particularly when a business owner dies without any documents to address the transition of the business that saying appropriately addresses what happens. In such case like passing without a Will, the business owner can leave a disaster for those who survive. An easy solution is to have an experienced business lawyer prepare a simple document to allow a surviving spouse, employee, or other beneficiary to instantly take over and run or wind up the business. This allows the survivor to take advantage of the value of the business at the time of the owner’s death for the benefit of whom ever the owner desire like family or charity. Corporate governance documents are the key for business transition The limited liability company is the most common business entity used today in Florida. For the LLC the document that achieves an efficient business transition and alleviates problems caused by the death or incapacity of the company’s owner is an operating agreement. This is sometimes referred to in common parlance as a partnership agreement but the LLC is technically not a legal partnership so the proper term is an operating agreement. Even if the LLC has only one member or owner, the operating agreement can act like a Will for the business. My article titled Do I need an operating agreement for my Florida LLC on LLC operating agreements is a quick read and contains helpful information about Florida operating agreements. Corporations are governed by their bylaws and shareholder agreement. For the Inc. those should contain continuity provisions specifying who will take over in the event of the demise of the owner. In Florida, the LLC has eclipsed the Inc. as the preferred business entity because only one governing document is needed as opposed to two. Also, the protections afforded to owners between the two are the same but the management and documentation requirements are less for the LLC. My article entitled Which is better the Inc. or the LLC discusses the differences between these two types of entities in more detail.

What can you do to prepare for a business transition In addition to having properly drafted corporate governance documents like an operating agreement prepared by your corporate lawyer, a prudent measure is to also develop a transition plan. The operating agreement will say who takes over but the internal transition plan will serve to tell that person what to actually do. This transition plan is similar to what you would prepare for any disaster response. But this transition plan must be balanced against the needs of the business to protect its proprietary information. To put it in other terms, the operating agreement is like telling everyone concerned that person X gets everything in your safe. The transition plan would tell person X how to open the safe. What is a business transition plan and what should be in it A business normally has clients, vendors, and may have employees or independent contractors. The client and vendor information may be confidential or even a trade secret. The business may have other trade secret information, trademarks, and a virtual presence like social media and e-commerce https://pracabiznes.com/ accounts. The owner or owners may not regularly share all of that information with employees and contractors.

The employees and contractors may also be subject to confidentiality, non-compete, and/or non-solicitation agreements. Therefore the business owner or owners can prepare that information but need not share it with anyone until a triggering event occurs. As long as the person tasked to take over the business or another trusted person other than the business owner knows of the existence of the business transition document then when the triggering event occurs the document can be easily retrieved and activated. The business transition plan can be paper or digital. The location of the business transition plan can also be defined in the operating agreement or other writing. Ideally it would contain information about the operations of the business and how to contact important parties like vendors and clients.The transition plan should also include passwords and log-in information for all business online accounts or the location of those so the party tasked with taking over the business to run it or wind it up can more easily do so. Whether to continue to operate the business, to sell it, or to wind it up may be up to the person into whose hands the business owner placed the business in the operating agreement. Depending on the circumstances that decision could be made by that person alone or together with others. How does a business transition plan apply to single member and multi-member LLCs If the LLC has multiple members it is a multi-member LLC. In that case the operating agreement will normally contain a provision for the disposition of the deceased or retired member’s shares. For example in those cases the shares may automatically revert to the company upon the death of a member imposing a purchase obligation on the business to pay the named beneficiary or beneficiaries under an agreed formula over a specified period of time. The surviving member or members may already know how to fully operate the business.

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