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SYK Business Counsel: Business Succession Planning Before You Open the Doors

Part of the new SYK Business Counsel Series.

On many occasions, I have had the opportunity to act as legal counsel and advisor to business owners that are at the point of “exit” from their business. This may be at a point where the business is being sold, where the owner is passing the reins of management to the next generation of family owners, or even in some instances where the business is wound down and liquidated. If the business owner has not planned carefully, problems due to taxes, unnecessary expenses, and exposure to unanticipated liabilities can make that departure a rough off-ramp.

The truth is, the best time to begin the process of succession planning is before the business opens its doors. While this may sound counter-intuitive, many important and far-reaching decisions are made in the opening weeks of a new business. Future articles in the SYK Business Counsel series will explore many of these issues in more depth, but here are just a few samples of some critical decision-point questions for owners of new businesses:

  • Do I have a business plan? A business plan will typically set forth a plan for business operations, analyze the business market, layout a management structure, assess the business capital required, and estimate the business’ prospective sales and profitability.
  • Should I get professional advice? While I admit my bias in an answering this question, I strongly believe having a team of professional advisors that is appropriate for the particular business is indispensable to success. Most new businesses face a conglomeration of “keystone” issues relating to taxes, employment laws, business contracts, accounting and finances, banking, insurance, intellectual property, data security, just to name a few. A “team” of professional advisors can help guide the business owner through this complicated thicket of challenges.
  • What legal structure should I use for my business? The business legal structure options include C Corporations, S Corporations, limited liability companies (LLCs), limited partnerships (LPs), limited liability partnerships (LLPs), and, on some occasions, a sole proprietorship. No one entity type is “best” for every business. Rather, the business owner should consider the options in light of many of the same keystone issues referenced above.
  • Where should I locate the business? Not only is a business’ location central to a business’ financial success, but the physical location of a business presents a number of important legal questions. For example, does the business have written lease that allows it to remain at the location for a prudent time period, possibly with options to renew and extend the lease term, if necessary? Do the municipal zoning rules at the location permit the particular operations of the business? These issues may even be critical if the business is initially operated as a home-based business.
  • Is my intellectual property protected? Often intellectual property is one of the most important assets of the business, but is frequently one of the least protected. While intellectual property can take many forms, common forms of intellectual property include trade secrets and other proprietary property (including customer lists and customer data), trademarks, industrial designs, and patented (or patentable) technologies. Proactive steps are often necessary to protect the value of intellectual property from competitors or departing employees.

These are just a few of the many issues for owners of new businesses to consider. If you have particular issues that you would like covered in future additions of the SYK Business Counsel series, feel free to email me.