Business owners invest a considerable amount of time, money and pride into their company, whether it is a small business or a large corporation. However, there will inevitably come a time when a business owner steps down, retires or passes away.
If Illinois business owners do not plan for their exit and the transition to new ownership, the future of their business could be at risk.
The failure to plan corporate succession could be the downfall of a business
If there is no clear documentation of who will take over the business – or the strategy for transferring ownership –or how to value the departing owner’s equity interests; it is easy for business partners or shareholders to face conflict over who will succeed the business owner. This conflict could lead to serious risks, including:
- Disputes and rifts between family members in a family business;
- Shareholder and partner disputes in a large corporation;
- Instability at all levels of the business, from employees to leadership;
- Significant decreases in profits, since succession disputes can distract from business goals; and
- Lawsuits between contending parties vying for ownership or control.
No matter who is “right” in these disputes, they will have a serious impact on the success of the business. Failing to prepare for a business’s future could even lead the company to close due to financial difficulties and lack of leadership. In other cases, a competitor might also attempt to buy out the company.
A succession plan is critical
Whether your business is a corporation, a limited liability company, a partnership or a sole proprietorship, you should take steps now to plan an exit strategy. Succession disputes are quite preventable, as long as business owners take the time to create an effective succession plan tailored to their business’s needs. We can help you draft an appropriate shareholders agreement or modify your existing operating or partnership agreements to incorporate an appropriate plan. Those agreements can mitigate the risks listed above while also:
- Ensuring the business is in good hands;
- Protecting the business’s legacy and reputation; and
- Making certain that your equity is protected.
When business owners clarify their wishes in a succession plan, they proactively prevent the risk of a damaging dispute. However, it is critical for business owners to consult an experienced business attorney in these cases. We can help you craft a practical succession plan that protects the future of your business.
