Hello and welcome to another episode of Murray’s Law. This is the time where I answer questions submitted by our viewers relating to legal side of business, business tools, tech, mindset, whatever you need to run a better business. Keep in mind that my answers are not legal advice and do not form any type of attorney client relationship between us.
Today’s question was submitted through the Beyond the Launch Facebook Group. If you haven’t joined you might want to because I actually answer these questions live in the group. You’re getting the edited version on replay and missing the conversation that’s taken place. The question for today’s Murray’s Law is how do I transfer my business to benefactor? I love this because most of us start businesses to provide a better life for our families but we don’t think about what happens to the business when we die. What happens to your business when you’re gone depends on decisions you made while you were living. We’re going to discuss three steps you need to take now to prepare for the transfer.
1. You need to select the right entity. If you are operating your business as a sole proprietor you and your business are one. This means your business assets will be liquidated by your estate to pay what ever outstanding business debt you have. This also means that if your business assets aren’t enough to cover you debt your personal assets will be used. To avoid this, make sure you select a business structure such as a LLC or a corporation that best suits your needs. It adds a degree of separation between you and your business.
2. You need written agreements. If your business is a LLC, your operating agreement should speak to what happens at the death or disability of the members (owners). Will the business be allowed to continue with the remaining members owing the decease his/her interest in the business? Must it dissolve? Will the estate or family member take the deceased place. I’m talking about operating agreements but if you aren’t a LLC and you will need the equivalent of this for what ever structure you choose. You also need make provisions in you will about what will happen to your business assets. If you don’t have a will the state will tell you what will be done.
3. Keep good books. Know what’s going on financially with your business and keep up with it in a way that others can easily know as well. How much is the business worth? Who do you owe money to? What vendors do you use?
Bonus: Talk with your family. Especially if your intent is to transfer your interest to them. Make sure their interested and start teaching them about the business to make the transfer as smooth as possible for your clients. I’m planning a webinar on this subject for April. I’ve reached to a colleague that practices estate planning law to discuss business succession in more detail. Make sure you’re on my email list to get the details when they’re released.