Family businesses form the core of the American economy, with up to 90% of all U.S. businesses being family-owned or family-operated. From traditional small businesses to companies on the Fortune 500 list, these businesses account for about half of the Gross National Product.
However, only about 40% of American family businesses survive beyond the first generation—a sobering fact for founders hoping to stay in business for decades. Common causes of business failure include unstable finances, a heavy tax burden, and personal factors.
What can business owners do to increase the chances of successful business succession in Virginia? Here’s an outline of the key elements from our estate planning and business lawyers at PJI Law, PLC.
The Human Factor
Many businesses fall into disarray and disintegrate after the founder and principal owner retires, becomes disabled, or passes away. Planning for a suitable successor is crucial in ensuring that a business will continue to survive and thrive.
Often, business founders dream of passing their life’s work directly to their children or grandchildren. However, in many cases, a long-term talented partner or employee is a better candidate for business management.
Appointing and training the prospective successor should happen long before the original business owner plans to retire so that the management transition passes smoothly. Of course, there are always unexpected events (such as sudden disability or death). That’s why it is vital to have an emergency plan.
Federal tax laws are complex and subject to change. For example, the new STEP (Sensible Taxation and Equity Promotion) Act may carry serious implications for people who inherit a family business. If the business has an unstable financial position, increased taxation could lead to its collapse.
Understanding how tax regulations can affect your business upon inheritance or ownership transfer is crucial to creating a sound financial plan. If in doubt, it is best to consult a business attorney with thorough knowledge of Virginia inheritance and tax laws.
Our legal team understands that business planning and estate planning go hand in hand. When you work with us, we do all we can to protect company assets, minimize taxes, and ensure a smooth and efficient company ownership transfer to heirs.
Business Exiting Options for Small Business Owners
Small business owners often choose between the following options while planning for an exit:
1. Transferring Ownership to Family Members
This route usually depends upon having a family member who is willing and able to take over. Company management requires thorough planning when several family members own interests in the business.
2. Selling the Business to a Partner or Key Employee
If your business operates under a partnership agreement, the agreement will typically determine the interest transfer in case of a partner’s exit. Otherwise, sale options vary and often include financing the business purchase over several years.
3. Selling the Business to an Outsider
Although a family-owned business may have high sentimental value, sometimes selling it to a third party is a better financial option. Preparing a business for sale includes several steps, including organizing company records, arranging for a business valuation, and addressing any weaknesses that might lower the company’s value.
4. Closing and Liquidation
If ownership transfer or business sale plans fail, the only remaining choice may be closing and liquidating the business.
How a Business Law Attorney Can Help With Succession Planning
Well-rounded legal counsel makes it easier to weigh your options. With the help of a business lawyer, you can make a more balanced decision and find a course of action that best serves your interests.
A knowledgeable business attorney can help you overcome possible legal and financial hurdles that may arise during business succession planning. At PJI Law, PLC, we have years of experience in financial moves for business organizations, such as selling business interests, conducting buy-sell agreements, and helping families plan with their long-term business planning.
As a business owner, you have worked hard to start and grow your business over the years. Don’t leave your company’s legacy to chance. Consult a corporate lawyer today to work out a personalized long-term business strategy for a secure future.
PJI Law, PLC: Business Lawyers in Fairfax, VA
Find yourself searching for a “business lawyer near me”? Welcome to PJI Law, PLC, a law firm that provides boutique legal services in business law, estate planning, probate, and civil litigation.
Our team will go above and beyond to make your life easier, with courteous, prompt service and constant communication. We help small business owners of all types and can help take legal headaches off your plate so you can focus on your business.
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The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
PJI Law, PLC
3900 Jermantown Rd #220
Fairfax, VA 22030