Many business owners in Chicago want to see their enterprise carry on in some capacity after they bow out of the business or are no longer alive. In order to achieve this goal, business owners need to prepare a successful succession plan.

First, the business owner needs to choose a successor. Sometimes this is a family member or current partner. However, things become more complex when a business owner has several family members or partners that have the capacity to continue running the business.

Sometimes all partners to the business or all appropriate family members can keep the business going together. However, if a business owner is going to choose one family member over another, it is important to discuss this ahead of time — including the reasoning behind the decision — in order to try to mitigate any possible resentment. If some partners want to continue the business, but others do not, then a buy-sell agreement may need to be executed.

Another part of a successful business succession plan is determining the value of the business. A business appraisal can provide this information or all partners to the business can reach a mutually agreed-upon decision regarding the business’ worth. If the business has publicly-traded stock, then the current market value of those shares will dictate what the business is worth.

Once a successor is chosen and the value of the business is ascertained, it is time to choose a vehicle for transferring the business. Life insurance policies are one way to do this. Cross-purchase agreements and entity-purchase agreements are two types of life insurance arrangements that can be used to transfer a business once a person retires or passes on.

Business succession, like other business transactions, is a complex process, but it is a necessary one for any business owner that anticipates retiring or understands that, in the case of joint-ownership, it is entirely possible for one partner to pass on before the others. A vague or incomplete business succession plan can cause headaches down the road, so it is important to work with a professional to ensure the final arrangements are legally sound and enforceable.