Business Succesion Planning

By Brian Macmillan  Managing Director  Mergers and Acquisitions

When developing a succession plan for your business, you must make many decisions. Should you sell your business or give it away? Should you structure your plan to go into effect during your lifetime or at your death? Should you transfer your
ownership interest to family members, co-owners, employees, or an outside party? The key is to pick the best plan for your circumstances and objectives, and to seek help from financial and legal advisors to carry out this plan.

Some of the more common business succession planning objectives include: ensuring a smooth, seamless transfer of ownership; transferring your business to the next generation; Ensuring business continuity; Retiring with an income source; and Minimizing gift and estate taxes. It is crucial to meet with a Financial Planner and other advisors to discuss your goals and determine the best path forward for you and your business. Below, you will see how different transfer of ownership options can impact these objectives.


Selling your business outright

You can sell your business outright, choosing the right time to sell — now, at your retirement, at your death, or anytime in between. The sale proceeds can be used to maintain your lifestyle, or to pay estate taxes and other final expenses. As long as the price is at least equal to the full fair market value of the business, the sale will not be subject to gift taxes. But, if the sale occurs before your death, it may result in capital gains tax or ordinary income tax. Selling a privately held business is not easy,
so meet with an experienced Mergers and Acquisitions Advisor to fully understand the process and your options. There are several ways to transfer the ownership of your business that can help save on taxes. A couple of these methods are Private Annuities and Self-cancelling Installment Notes. While these methodologies can save taxes, there are also risks involved. You should consult your tax professional whenever considering the sale of your business.

Transferring your business with a buy-sell agreement

A buy-sell is a legally binding contract that establishes when, to whom, and at what price you can sell your interest in a business. A typical buy-sell allows the business itself or any co-owners the opportunity to purchase your interest in the business at a predetermined price. This can help avoid future adverse consequences, such as disruption of operations, entity dissolution, or business liquidation that might result in the event of your sudden incapacity or death. While buy-sell agreements can be great for planning, business continuity can be an issue if there is not someone in place to run the business.


If you’re like many business owners, you’d prefer to have your children inherit the result of all your years of hard work and success. Of course, you can bequeath your business in your will, but transferring your business during your lifetime has many
additional personal and tax benefits. By gifting the business over time, you can hand over the reins gradually as your offspring become better able to control and manage the business on their own, and you can minimize gift and estate taxes.Two common ways of gifting your business include the use of trusts and family limited partnerships. You can establish a revocable trust, which will bypass probate and allow you to change your mind and end the trust, or an irrevocable trust, such as a grantor retained annuity trust (GRAT) or a grantor retained unitrust (GRUT) that can provide you with income for a specified period of time and move your business out of your estate at a discount. A family limited partnership (FLP) is a limited partnership formed to manage
and control a family business. You (and your spouse) can be the general partners, retaining control of the business itself and receiving income from the business, while your children can be limited partners. By transferring the business to an FLP, you may be able to use valuation discounts and substantially reduce the value of the business for tax purposes by making annual gifts to the limited partners. There are many ways to transfer the ownership of a privately held business. The key is to pick the best plan for your circumstances and objectives, and to seek help from financial and legal advisors to carry out this plan. BWFA’s team of Mergers and Acquisitions Advisors, Financial Planners and Tax Professionals can guide you through the transfer the ownership process.