By Phil Harwood
Surprisingly, only 1 in 4 companies have a succession plan. Because of this, a highly relevant question for business owners is, “Are you ready to exit your business?”
I work with business owners every day. The Baby Boomers are definitely looking to exit their businesses. But many aren’t ready to do so, not because they don’t want to, but because they haven’t properly prepared for their exit.
My younger business owner clients generally have other priorities and don’t want to discuss exit planning at all.
The problem is that we never know when some unplanned event will occur and potentially creating a crisis at the worst possible time. Having a well-designed exit plan (and estate plan) is a much better scenario.
I recently attended a business law conference where we discussed current hot topics and seminal court cases. In Welsh v. Welsh (2024), there was a dispute about who actually owned the business. The key takeaway was that businesses should seek counsel to review organizational documents, buy-sell agreements, insurance policies, etc. to ensure that ownership interests are handled properly.
Triggering events that cause such disputes are things like death, disability, retirement, divorce, bankruptcy, termination of employment, or breach of fiduciary duty.
Another issue that arises is shareholder oppression. In Franks v. Franks (2019), the court established precedents for cases involving minority shareholders claiming oppression. Whenever a business has minority owners (owning less than 50% of the shares), tensions may arise over valuation, distributions, etc. The key takeaway as that businesses should have clear operating agreements, dividend policies, and transparency among owners.
These cases represent only a couple of the many issues involving exit planning. If you’re a business owner, let’s have a conversation about your exit. You may not be a ready as you think you are.
As you consider your exit, I highly recommend reading The Tamarisk Method, by Tabetha Hart. This easy-to-read page turner may provide the inspiration and insight you’ve needed to get started on your exit plan.
If your not a business owner, who do you know that would benefit from this article? Or a copy of The Tamarisk Method?
Now Go Forth.