I wanted to followup an Mr. Krier's presentation at the WCT Conference. We were challenged to establish a succession plan so that the business continues upon our death. He reflected that he knew 10 people in this business that passed....and only 2 businesses are still in operation. The rest failed. It is a shame that this can happen because you are creating value in your business. The challenge is to make sure that upon your passing, the business is still servicing customers the next day.

I see two separate parts of this plan.
1) Transfer of ownership via Will or Trust.
2) Operation of business plan.

A will or trust is easy to establish, as there are templates online. However an operational plan for a ADC business is a different animal. Anyone want to share their plan or ideas....especially for #2.

If you have no offspring or none of them are interested in your business, what Al mentioned at the seminar makes a lot of sense. Make a deal with a competitor, that he takes over your business immediately upon your passing and gives X amount of dollars to your widow for X amount of years. After that he owns your business outright. This can be reciprocal but needs to be done by an attorney for both of you.

My son already runs our company so that is a no-brainer. Reimbursing our two daughters for the value of the company could be a little trickier. Trying to figure out succession if anything happened to PJ will be a lot more difficult. I also have at least one grandchild that will probably working for us in summer, so that may be another option.

Paul, what if PJ passes the following month due to heart break or stress from the extra work? Or, what if you are riding together on a truck and get into an accident? Who would know how to operate the business?

You ARE the business! How can you put value on that? You also need to make sure of an orderly transition to a well trained successor.

I've had a similar conversation with my attorney after Rick Finney's death and had my eyes opened. There are a lot of rules that apply for transfering ownership starting with rules specific to the state the business is regestered and then becomes even more complicted with the company structure, spouse/children, stock ownership, business assets, etc.

When I posed this question to the ATF agents, I was futher surprised to find out that if you have a class 3 stamp for an item registered to the corporation that it will take legal proceedings to keep that stamp when the owner of the business dies.

This is not a simple subject and really is one that needs addressed properly with an attorney familiar with business transfers hired for this specific purpose.

wife has a plan; open garage and the faster gets the mostest! Buzzards have been circling ever since she said it.

I like the idea Paul talks about making an agreement with a competitor. I will have to think a little more about that idea. I personally know of three friend that have passed and the family had no idea what to do with the business.

If some one other than a son/daughter takes over the business, will they want the same name you have? If they change the name, Will the business be concidered gone? Just a thought.

Dave, that is exactly the part that needs to be addressed. I die, wife and PJ take over, My wife and I die, PJ takes over, All three of us die, Stacy takes over with the help of her husband and firstborn, who have a lot of experience in what we do. My daughter Beth and her husband both have the licenses to carry on and also a lot of experience, but I doubt they have the will to do it.

It looks like I've got a great plan but now it needs to be put on paper and legalized.

People are focused on transferring ownership....names...etc. Are you sole proprietors?

If you are a corporation, it is just a matter of transferring stock. The ownership can be transferred just as other stocks you might own...Disney...Walmart...etc.

When you have a corporation, you are not the business! It is a separate entity. Consider not being involved in the day to day operation. Why would you need too be? That is not a rule that you must follow. Frankly, your business is worth much more if you are not required to work in it.

Dave, I'm going to run that one by Jess and PJ. "The business is worth a lot more if I'm not required to work in it." Dave said so. I'll let you know the results.

Dave,

I'm going to play devil's advocate here and disagree with you. Just because it is a corporation does not mean it is a simple matter of changing stocks. Rather, it is a matter of taxes, assets, intellectual property, legal challenges and more.

Start with proof that the corporation is run as a corporation. Without proof (annual minutes, business plan, separate bank accounts, etc.), it can be contested that the corporation never existed which if upheld then transfers everything to a personal level that may end up in probate. This is just like a sole proprietor that doesn't have a will detailing where the property goes.

Next, move to the assets. If the vehicles for the company are not owned by the company special considerations might need to be included so that they stay with the company instead of being viewed as personal property. Don't think just about trucks or cars, this includes ATVs, boats, trailers, etc.

Now move on to assets. If the property isn't listed on the tax form or some other legally recognized document, all the traps, power tools, computers, air rifles, guns, bows, desks, chairs, uniforms, ladders, etc. can suddenly become personal items versus business equipment. The trick here is to make sure to identify what is business and what is personal, especially if you want to ensure certain items are given to specific family members or friends.

The intellectual property issue can be its own nightmare. For example, I personally own the Service Mark on "Bats, Birds" not my corporation Bats, Birds, & More. There are several reasons to register it personally versus through the corporation. Now get into other items that may be intellectual property such as company manuals the owner created, inspection forms, logo designs, etc. and you can see where just changing stock options won't cover it.

These are all issues for any business type regardless of how it is registered. Corporations and LLC's may have an easier time of proving what items are personal versus business, but based on how the business has been run, assets they have acquired and the records they maintain, it may actually be harder to keep items as business instead of personal which then lowers any selling price or the ability to will it to another.

Like I said, I'm just playing devil's advocate here and trying to get people thinking.

Good points. I guess I assumed that everyone was running a properly maintained corporation. There is no point planning a s plan, if there is not a viable business. Who would want to buy it, anyway?

It is a good idea to have the assets under the corporate umbrella. One of the reasons of incorporating is to protect assets from personal liability.

If you have a corp, you do have to maintain records of the annual meeting. It is pretty easy to do. I suppose it is easy to forget too.

Thanks Eric, as if my head doesn't hurt already from taxes, now I've got all this to think about as well. Like Dave says, I excel at one thing more than anything else and that is forgetting.

I just read Paul's post and I think he is just using the "S Plan" to get out of doing stuff. More value if he does not do as much , yeh right.

Mr. Pro Line buzzards have been circling your garage for years. They don't know its your r and d section they think something is dead in there. I would be scared to come get your stuff zombies could be fooled and hanging around also.

you are just trying to scare off the competition. ps THE ATTIC HAS BEEN MOVED.

Now those that have been there don't think someting is dead in there, they KNOW!

Sorry Paul,

Call it payback for my editing time, lol.

Seriously though, in my very limited experience, this problem isn't caused by the owner or their wishes, rather it is with family members that are upset that they didn't "get enough" and challenge it. When very little regarding ownership is put in writing it makes it easier for someone to demand more and force it to happen. So not only are will's very important, but also any documentation that will be legally recognized showing ownership of property (if it is to stay as company property and not personal) as well as a base understanding of state probate laws (for instance in Ohio, it is something like spouses are automatically allowed to choose one vehicle and one boat from their spouses property before any children have claim to them and then it is I believe a 60/40 split on all remaining property without a will being recognized).

And don't forget to include distribution instructions for personal property even if your will has everything going to a spouse or whomever. In my case, the majority of items are owned by my corporations; however, I do have several items (musical instruments, firearms, photography equipment, books, animal mounts, pictures, etc.) that are to go to specific children and if I don't include those directions for my successor, then I am opening the door to a potential conflict between my children since some of them wanted the same items.