Succession Planning: Now is the Time to Develop a Plan

As the economy progresses through an economic cycle and continues to improve, business owners are seeing the value of their business recover.  Now is a good time for business owners to develop a plan for their company’s future, even if retirement is not on the horizon.

A succession plan is a long-term process put in place by the business owner that identifies who the business will be transferred to upon the owner’s retirement.  While death, disability or divorce might seem like remote possibilities to business owners, the havoc they leave behind can destroy a business.  With a succession plan in place, a crisis situation can be avoided.

The succession process begins with communication and discussion.  It is important for the business owner to identify those who are candidates to succeed to the business, which can sometimes be a timely and challenging process.  If a successor is not yet qualified to take control of the business, a viable option is to bring in an interim manager or executive to operate the business until the successor develops the necessary skills to take control of the business.  Another option is for the business owner to serve as a consultant to the successor by offering their experience and knowledge of the industry to the successor.  This also provides cash flow to the retiring owner.

When planning for succession, the business owner will meet with an attorney, accountant and financial manager to examine their current and forecasted income needs and update their estate plan.  The professionals will also assist the business owner in determining when will be the best time to withdraw from the business, how to fund the transition, the tax implications of the transition, the source of funds to pay the business owner, and whether the business generates enough income to pay both the business owner and the successor.

During the planning and implementation process, the value resides in the business and control is transitioned to the successors.  Upon the completion of the process, the objective is to convert the value into income for the retiring business owner and transfer control to the successor.

Once a successor has been identified and a transition plan is in place, the next phase of the process is to create a buy-sell agreement.  The buy-sell agreement:

  • transfers the actual value of the business to the retiring owner.
  • gives control of the business to the successor.
  •  defines the timing of the transfer.
  •  determines the price of the transfer.
  •  determines the payment terms.
  •  can include the source of funds to pay for the transfer.

Consideration has to be given to the tax basis for determining capital gains and losses on the sale of the interest in the business, for both the retiring business owner and the successor.  Life insurance is often used as a tool to provide the liquidity to pay for the purchase.  Also, life insurance is a way of converting value into cash.  In a family-owned business, a gifting program to transfer ownership to the next generation is implemented where a percentage of ownership is gifted over a term of ten years or more.
Developing a succession plan requires time, effort and energy, but having a proper plan in place allows a business owner to achieve maximum value for their life’s work and peace of mind knowing the business will continue to thrive upon their withdraw from the company.

Attorneys at CMDA effectively develop succession plans for businesses of all sizes.  Even if retirement is not on the horizon, business owners need to start planning for the future.  To discuss the development of a plan, please contact our offices.

Christopher G. Schultz, the managing partner of the Firm, focuses his practice on representing businesses in many areas of the law, including business succession planning, entity selection, start-up issues, shareholder and owner relationships, employment matters, mergers, acquisitions, and real estate matters.  Additionally, he assists a great number of clients with estate and elder law planning, including wills, trusts, charitable giving, estate administration, irrevocable trusts, gifting and special needs trusts.  He can be reached at (734) 261-2400 or cschultz@cmda-law.com.

Brege Presents on Open Meetings Act

CMDA attorney Andrew Brege participated in the Michigan Municipal Risk Management Authority’s (MMRMA) Risk Management Workshop recently held in Lansing, MI.  MMRMA members from throughout the state attended the conference.  Mr. Brege gave a presentation to a well-attended group on Public Meetings: Working with the Public and Boards to Avoid Lawsuits.

The presentation concentrated on the Open Meetings Act (OMA). Ms. Husband and Mr. Brege explained that the Act requires all members of governing body with decision-making authority to conduct their business at a properly noticed, open meeting. At an open meeting, members of the public have the right to speak and make comments, subject to reasonable regulation. For example, the public body may establish time limits for individual speakers.

Additionally, members of a governing body should not exchange information or debate a topic in the form on e-mails or text messages; as such communications could be considered a violation of the OMA.  Even if the e-mails are not relevant to the public issues being considered, e-mails sent between members could still be subject to the Freedom of Information Act.

Mr. Brege also explained the open carry rules in public meetings and that a local governmental unit cannot restrict the carrying of firearms on its property, unless specifically allowed to do so under state law.

A public body that violates that OMA may be subject to money damages, including attorney fees, as well as possible injunctive relief.  An individual board member that violates the OMA may be subject to both civil fines and criminal prosecution.

If you or your governmental entity is interested in more information, or a similar presentation, please contact Mr. Brege at (616) 975-7470 or abrege@cmda-law.com.

Two Attorneys Named Partners

We are pleased to announce that attorneys Patrick Sturdy and Andrew Brege have been named general partners of the Firm.

Mr. Sturdy joined the Firm in 2000 and works out of our Livonia office.  He has significant experience with post-secondary institutions with an emphasis on employment and equal opportunity law.  He also focuses his practice on corporate and business law and intellectual property.  He can be reached at (734) 261-2400 or psturdy@cmda-law.com.

Mr. Brege joined the Firm in 2008 and works out of our Grand Rapids office.  His practice centers on municipal and insurance defense, with a focus toward civil rights and employment practices liability. He also focuses his practice on general municipal law.  He can be reached at (616) 975-7470 or abrege@cmda-law.com.

Christopher Schultz, managing partner of the Firm, explains, “Patrick and Andy have both demonstrated a tremendous work ethic, as well as an interest in developing and promoting the Firm.  We look forward to their leadership and continued contributions to the Firm.”

Please join us in congratulating Patrick and Andy on being named the newest partners of CMDA.