If you have recently started a new business, you need to consider planning for what will happen to your role in the company in the event of your sudden incapacity or death. During the early days of a new business venture, estate planning may not seem like an urgent priority considering everything else that you have to do to get a business off the ground. However, it is important that you iron out these details early on to ensure that you can preserve what you are building no matter what happens.
Here are some things that you should bear in mind about how to plan ahead successfully. You have to thoughtfully consider what you can do to safeguard your family’s interests while also meeting your obligations to partners and employees.
Avoid conflicts with existing obligations
If you and one or more partners have a formal business agreement, there may be some express provisions regarding the incapacity or death of one of its members. You must take care to avoid contravening the terms of any agreements or any laws governing partnerships in how you draft a will, living will, or power of attorney.
Identify who can make decisions for you
In the absence of an agreement with other owners, you may need to consider who you wish to authorize to make decisions about the business on your behalf if you are temporarily unable to carry out your company’s business matters. Establishing a power of attorney will enable a person to access, spend, and receive funds on your behalf.
Create a buy-sell agreement
A buy-sell agreement (or a buyout agreement) is a legally binding contract between business co-owners that dictates what happens to a business when a co-owner dies or leaves the business. These types of agreements compel business co-owners to discuss how the business and its assets are to be handled if one person leaves the company for any reason. They protect business owners when a person passes away and should be created at the same time the business is formed.
Powers of attorney
Family and small business owners typically face greater financial risk than do large corporations. As such, a power of attorney is critical for small business owners to protect the functioning of their business should they become incapacitated. The power of attorney gives the business owner’s “agent” the legal authority to manage the affairs of the business during the owner’s incapacitation. Without it, a court may become involved and appoint a person to assume control of the company.
Starting a new business is an exciting time, as well as one fraught with potential pitfalls. If you have questions about how estate planning ties into business formation, it’s wise to contact an experienced attorney for help. Make your first step as a business owner the right step.