When you take the time to start a business in Ohio and put significant energy into making sure that the business thrives during your lifetime, it is critical to ensure that you have a plan for transferring your business after you are gone. Much too often, business owners pass away without a clear plan for transferring the business, but making such a plan in advance is critical to ensuring that your business will survive. An effective succession plan can allow your business to continue to thrive even after you are gone and allow the parties of your choosing to keep control of the business. To create an effective succession plan, consider the following tips from our Ohio business law attorney.

1. Create a Succession Timeline

Whether you are planning to transfer your business to a trusted family member or another party once you become unable to run the business yourself or once you pass away, it is important to create a succession timeline. The succession timeline should provide detailed instructions about how ownership of the business will change and key dates for every step in the process of transferring the business.

2. Identify a Successor and Provide Instructions for the Transfer

In order to have an effective succession plan, you will need to identify a successor and provide detailed information about how the successor will take over. In identifying a successor, it will be important to resolve any family issues that could result in litigation between or among family members or potential successors who believe they should be in line to take over the business.

3. Create a Contingency Option in the Event Your Successor Cannot Take Over

If your named successor is unavailable or unable to take over the business, it is important to have a contingency plan. It is often advisable to provide a list of possible successors as part of your contingency plan in case an issue arises and your preferred successor (or successors) cannot take over the business.

4. Ensure that Your Business Has Regular Valuations

It is important to have a business valuation performed in advance of naming a successor and in the years leading up to the business succession plan taking effect. In conducting business valuations, you can have a clear picture of the business’s financial situation, and you can also identify potential funding sources for the business succession. For example, you could identify your own life insurance proceeds as a funding source for the business succession. In having a business valuation conducted routinely, you can also leave your successor or successors with clearer information about whether the business can be sold and what issues may need to be addressed in order for the business to be sold.

5. Make a Plan to Limit Estate Taxes

It is important to consider methods for limiting or reducing estate taxes that will be owed upon transferring your business to a named successor. Under Ohio law, there is no estate tax according to state law. However, it is important to determine whether another state’s estate law tax could apply to your successor depending upon their state of residency and the state in which your business was located (if not Ohio). Federal estate taxes will only apply to assets valued at more than $12.06 million. 

If you want to reduce or limit estate taxes related to the transfer of your business, you can consider options such as making a charitable donation from the business, or setting up or converting to a family limited partnership under Ohio law. Even if estate tax can be levied, the Internal Revenue Code permits estate tax payments to be deferred or for an extension to be granted under certain circumstances. Deferments and extensions can be granted under Section 6161 of the Internal Revenue Code.

Contact an Ohio Business Lawyer

If you have questions about creating a business succession plan or need assistance finding resources, you should get in touch with one of our experienced business lawyers in Ohio. Contact Wells Law, LLC, for more information.