Why every business needs a succession plan

Any business without a firm succession plan in place runs a significant risk. If this describes you, then you should contact an estate planning attorney to make sure your business has a good plan in place.

Without such a plan, your survivors — including your managers and employees — may have to deal with any number of problems. The business could suffer a liquidity problem during the ownership transition if the tax bite is great enough.

If there is no formal arrangement to transfer ownership, appoint a new manager, or even sell the business outright, then the problems that develop could be serious enough to result in the closing of the business. If there is not a comprehensive succession plan in place, then it is possible for the family to object to the succession. You may also have people take over your business who are unable to own or manage it well.

The primary elements of a good business succession plan

Of course, it is never good for any company to depend on a single person. From the moment you establish your company, you should have a plan in place for when you decide you are either unable or unwilling to continue leading the company. Every business succession planning checklist should include the following:

• a vision of your company going forward without you
• a list of people who will take over for you when you step down
• a comprehensive list of other company leaders
• a method in place for resolving any disputes regarding the succession plan whether by family members or other stakeholders
• a timeline for putting each element of your succession plan in place

What should your business look like after you are gone?

Fashioning a vision for your business after you are gone requires you to examine the current state of your business, and to establish a vision of what it should look like going forward.

Likewise, a set of business goals formulated when you were 25 years old may not be valid 20 years later and may seem even less valid as you approach retirement age. As part of your business succession plan, your vision of the company must be realistic and based on real numbers and realistic projections.

Choosing a successor owner can be tricky

While you may be tempted to just choose your first-born child or your brother or sister to take over your business, you have to consider the implications of choosing the right successor. What if they do not want the business? After all, not all family members may be as enamored with the family business as you are, and they may have careers of their own to consider.

Perhaps you have a partner in the business, and you could leave it to them. That is possible as long as the partner is not silent and is active enough in the business to know how to run it. On the other hand, if your partner is the same age as you, they may have a desire to retire the same time you do. In other words, asking a lot of questions and considering many possibilities for a successor will probably lead to a better choice than simply deciding on your own who should take over for you, should you no longer be able to run the business at some point.

Whomever you choose, consider your successor’s talents. Make sure they can run the business in the way you think is right. Make sure they have enough financial and business experience and success to be able to make your vision come alive. Consider too the option to sell the business outright before you retire, or order it sold upon your death or disability. That is always possible and, depending on the circumstances, could limit the number of family squabbles over it.

How to resolve disputes when you are not present

This is why you create a business succession plan in the first place. It is the same reason you need an estate plan: so you can continue to make rational decisions even after you are either gone or unable to run the family’s affairs. With a valid business succession plan, you get to make all of the business decisions beforehand.

With your business succession plan in place, you and your estate planner or estate planning attorney can direct exactly where you want the business to go, thus eliminating the guesswork that often results in family disputes. If your instructions are clear and concise, there can be little or no room for disputes, which means you can control family problems yourself, even from the grave.

Contact

You should take your succession plan as seriously as you do the business itself. Contact Estate Planners of Arkansas today for a free consultation.

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Your attorney can discuss the taxation, personal liability and debt implications of any structure you may choose. An experienced attorney can be the difference between a successful incorporation and a fiasco.

How to Form a Corporation

A corporation is a separate legal entity from its owners; meaning it can make a profit, be taxed, and held legally liable. Corporations have rights and responsibilities under Arkansas law and must file annual tax returns. When you turn your business into a corporation, it will survive your passing and the transfer of shares to different owners. As a separate legal entity, the corporation may become the subject of a lawsuit and can incur debt. An attorney can help you determine which type of corporation is best for your growing business.

If you want to change the legal structure of your business, you have other options. You may form an LLP (limited liability partnership), an LLC (limited liability company), C or S Corporation, Nonprofit, or one of the many other common business structures. Not every entity provides liability protection or the possibility of reduced self-employment tax. If you desire a high level of autonomy in your business, a Sole Proprietorship may be of interest. You will have the advantage of being the sole proprietor when it comes to disturbing company funds, but you also have a disadvantage of being personally responsible for every business debt and obligation. Conversely, an LLC provides limited liability protection from business obligations and debts but can be costly to form if capital is not already acquired.

You will want to make your selection wisely and choose the structure that most effectively coordinates with your business’ needs. Each business form comes with different tax consequences depending on the type of legal structure. Your attorney can help you weigh the respective pros and cons given the objectives of your business.

Required Information in Arkansas

To form a corporation, a business owner needs to file proper paperwork to create Articles of Incorporation. The articles are distinct from the company by-laws, which detail how the company is managed and operates. The incorporation forms request particular information that covers some basic ground, specifically:

• Name of the Corporation
• Primary purpose of Corporation (nature of the business)
• Name of the registered agent
• Street address of the Corporations registered office
• Business duration
• Name, signature, and address of each incorporator
• Names and roles of directors
• Quantity of authorized shares or stock
• Classes of stock (common or preferred)

There are specific rules about each of these items, such as who qualifies to be a registered agent. To incorporate in Arkansas, you must have an individual or company that resides in this state to act as the agent.

Your business name should be unique, so it is essential to perform a preliminary name search. Each of your directors should have their roles in the corporation clearly identified on the forms. A skilled and experienced attorney can help you navigate these finer details when it comes to creating and building your corporation.

Discuss Your Options with an Attorney

Your lawyer can help you to make sure that your incorporation details accurately reflect the realities and goals for your business. To discuss your business and future corporation with a legal advisor, contact Estate Planners of Arkansas P.A. today at 501-414-8965.

The post The Basics: What You Will Need to Form a Corporation appeared first on Estate Planners of Arkansas.

For a small business owner, deciding which of these legal structures you should adopt for your own company can be confusing, especially because many of them have similar names. Find out which one is best for your business by using the following guidelines and tips.

Is a Limited Partnership the Same as an LLC?

Take limited partnerships and limited liability companies, also called LLCs, for example. These two business structures sound a lot alike. Add limited liability partnerships to the mix, and the entire thing can be very confusing. But don’t let the similarity in names confuse you. The short answer is that while limited partnerships, limited liability partnerships, and limited liability companies do share some characteristics, they are completely different. Here is what you need to know.

Limited Liability Company

A limited liability company (LLC) is like a sole proprietorship because income is treated as a pass-through on owner tax returns. However, there are some important differences that you should note. The LLC structure provides a certain amount of liability protection that a sole proprietorship does not offer, meaning that an LLC limits or diffuses the level of which owners are liable in the company. It also allows there to be several owners – called “members” – and for those owners to divide their ownership in whatever way they see fit.

The biggest downside is that members have to pay self-employment taxes on the income they receive from the limited liability company. Your attorney will know the various facets of the law surrounding LLCs, and that attorney can help you decide if becoming an LLC is right for your business.

Limited Partnership

Limited partnerships (LPs) have the same tax advantages as limited liability companies, but the inherent structure is different. LPs require that owners that have a managerial role or other active position in the running of the business be liable for it. Silent partners, called limited partners, are excused from personal liability, but they can lose their investment in the LP company. Your attorney can help explain these differences to you so that you can make the best decision for your business.

Limited Liability Partnership

In contrast, a limited liability partnership (LLP) is made up of members who share the management of the company but each one has liability protection so one member’s actions do not impact another member. They can still divide their ownership of the LLP in any way they like. This legal structure is often seen in professions such as law or accounting.

Limited liability companies have some important differences from limited liability partnerships and limited partnerships. Make sure that you understand all the ins and outs before you commit to a legal structure for your business. Estate Planners of Arkansas, P.A. can help you weigh the pros and cons of each one. Contact us today at (501) 414-8965 to request a free consultation and see how we can help you.

The post What Is the Difference Between a Limited Partnership and an LLC? appeared first on Estate Planners of Arkansas.

Let’s say you are single and have three children. Two of them are gifts sent down from heaven but not the third child. The third child has stolen from you, lied to you, married a worthless man who gets out of the state penitentiary in five to ten, abandoned her children at the local Dollar General store years ago, arrested for hot checks, burned your rental house down while cooking meth and said that your Thanksgiving dressing (handed down by great grandma) tastes like cow manure with grasshoppers in it.

How do you make sure the loser daughter doesn’t get anything? At a minimum, you need to mention that “meth head” is your child in your will. You don’t have to leave them a dime. Some people think that you have to leave them at least a dollar. It’s not leaving them a dollar that cuts them out; it’s mentioning their name that does the trick.

Here is what we do at our law firm. We name them as a child in mom’s will and we specifically say that they shall receive nothing. If mom also has a trust, we specifically name the child in the trust also and specifically say that they shall receive nothing. Then we add a “No Contest” clause. The “No Contest” clause says that if a child challenges the will or trust in court, then the child doesn’t get a dime and neither do the child’s children if they have any. All of this pretty much stops any attorney from taking the case to contest the will or trust.

Estate Planners of Arkansas, P.A. has prepared over 4,000 Estate Plans. Call 1-501-414-8965 for your FREE initial consultation today.

Reasons People Take Action To Set Up An Estate Plan
• A change in circumstances or milestone in the Client’s life
• Marriage or remarriage
• Divorce
• Birth or death of family members
• Change of job
• Retirement
• Health concerns
Discovery of a major illness, such as cancer
Major surgery
Nearing mental or physical incapacity
• Vacations and travel
• End of the year and tax time
• Changes in federal, state, and municipal tax laws
• Natural disasters such as floods, tornados, hurricanes, earthquakes

The post How to DISINHERIT those ungrateful, lazy, greedy, good for nothing kids! appeared first on Estate Planners of Arkansas.

It is common practice in Arkansas and throughout the United States for an attorney to prepare the trust but they don’t prepare the paperwork to transfer anything into the trust. They either don’t tell you that it needs to be done because the attorney themselves don’t know or they inform you that you need to do it. Some attorneys will prepare your deeds but nothing else.

When someone comes to me and tells me they already have a Living Trust, I’m going to ask the following questions:

Do you remember signing deeds transferring your real estate to your trust? Does your real estate property tax bill show the land in the name of your trust?

Do your bank statements show that your accounts are in the Trust?

Do your stocks, bonds, and CD’s show they are owned by the trust?

Was the beneficiary on your life insurance, IRA, 401k, 403b, annuity, etc. change so that they flow into the trust correctly?

Do all your investment account statements show that they are in the trust?

If you own a corporation, LLC, partnership, etc., was the stock transferred into your trust?

If the answer is no to any of these questions, then that asset is not properly transferred and may have to go through probate.

Transferring all the assets into the Living Trust is one of the most important aspects of setting up a Living Trust. We are one of the only law firms in Arkansas that I’m aware of that takes responsibility for preparing the paperwork to transfer all the assets into the trust. We make sure the deeds get filed at the court house properly, that the instructions letters get mailed, that the change of ownership and change of beneficiary forms get filled out correctly and mailed to the correct place. We also have a follow-up procedure where we continue to work with our clients to make sure all the different financial institutions did what they were supposed to do.

Estate Planners of Arkansas, P.A. has prepared over 4,000 Estate Plans. Call 1-501-414-8965 for your FREE initial consultation today.

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