Many business owners spend years building their business, without spending much thought as to how the business will be managed or passed on upon the business owner's death. Out of necessity many business owners focus primarily on running their companies and developing, manufacturing or marketing their products or services, without giving adequate thought to actual legal structure or succession plan for their business.
Proper business planning can provide better asset protection for the founders and principals of the business, and better facilitate the seamless turning over of the business upon the death of the owners. The legal form of the business is paramount. Corporations or Limited Liability Companies often present asset protection and tax advantages over a sole proprietorship, for example. A living trust can be employed to hold title to the business, whether it is a sole proprietorship or a corporation, and can pass the ownership rights or stock interest in that business on to the proper beneficiaries upon the owner's death without any probate.
Where there is more than one business owner or stockholder, a buy-sell agreement can be used to make sure that the surviving business principals receive all of the ownership in the company if one of the founders dies, while at the same time ensuring that the deceased founder's spouse or family receive cash or insurance proceeds for the monetary value of the deceased founder's interest in the company. Such an arrangement makes sure that everyone is happy; the surviving owners continue to run the business without interference from outsiders, and the spouse or family of a deceased owner receive the cash that they are entitled to as a legacy. Where the duties or skills of one of the owners or employees of a company are unique and important to the company, key-man insurance can be used as a business succession tool to help provide a financial buffer to the surviving owners in the event of the death of that valuable owner or employee. In such a situation, the cash from the key-man insurance can be used to help support the business until a new replacement with comparable skills or qualifications can be found.