Know how: You need an exit plan, since no one owns a business forever

By Beth B. Miller
Guest Columnist

My little Irish Catholic grandmother used to tell me: they don’t sew pockets into shrouds. In other words, you can’t take it with you. The same applies to business. At some point, your estate plan will take effect, and every business owner should consider how and when that will happen.

If you do nothing, your exit will be dictated by Chapter 5, Title 12 of the Delaware Code. Give yourself more time, and there will be more options and flexibility.

Assuming you wish to exit your business voluntarily and transfer your business to another person or entity, there are several things to consider. But first, you have to get the documents straight.

The legal aspect of transferring ownership is usually the easiest task to pin down. You simply hire an attorney to put in writing exactly what you want to do. That requires a conversation where you discuss what you want to accomplish and when and to whom to transfer your business.

The lawyer will have opinions on how to structure the deal, but you and the buyer ultimately make the decision.

Assuming that you have a ready, willing and able buyer, an outright sale is quite easy on paper. By selling the business in full, money is immediately in hand upon transfer of ownership.

But there are a variety of considerations still to be made: determination of purchase price; whether the seller will provide financing; and what is being sold and what is not being sold.

A gradual sale is a bit more flexible and a bit more comprehensive. A gradual sale with seller financing obviously would benefit buyers who cannot afford an outright sale (which would increase the number of potential purchasers), but it puts the risk on the seller if the buyer fails to complete the purchase.

A family business brings in all of the above wrapped in more personal issues, which complicates the paperwork. Does the client have more than one child? Does the client sell at fair market value or at a discount? If the sale is at a discount, is this discount to be taken into account in the client’s estate planning documents using a hotchpot calculation?

These are all questions you want to consider ahead of time. And sooner the better, because they don’t sew pockets into shrouds.


Beth B. Miller practices tax, trusts and estates law at Fox Rothschild LLP. She is a frequent speaker on the topic of trusts, estates and business succession planning.

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