Blogs from April, 2020

Continuity refers to something occurring in an uninterrupted state or on a steady and ongoing basis. In part III of our 3-part series, we will discuss how to close a small business when an owner passes away. Yes, continuity planning includes deciding when and how to shut down. 

How does a business wrap up operations when an owner passes away?

1. It must be decided if the business can and will continue to operate. If the business will continue, the deceased owner’s interest must be cleared. That interest must be properly conveyed through some type of legal process: will, trust, operating agreement, buy-sell agreement, etc. Planning in advance for business continuity can allow this transition to happen with little to no disruption to the business.
2. If the business will be completely dissolved, a dissolution will be filed with the Secretary of State. A dissolution is an official notice to the public that a business is no longer active. Note: final expenses and taxes must be paid from the business before the remaining proceeds can be distributed to heirs, partners, etc.
3. If a business is going to carry on without the deceased owner, the formation filings must be updated with the Secretary of State to show the deceased owner no longer has an interest in the business. It is important to make these filings or changes with the Secretary of State to avoid incurring more dissolution fees over time. 

Business owners certainly have plenty on their plates to keep them busy, but that is all the more reason to have a business continuity plan in place. If you have questions about planning for your business to continue without interruption upon your incapacity or death, please contact us.

Continuity refers to something occurring in an uninterrupted state or on a steady and ongoing basis. In part II of our 3-part series, we will investigate three of the many ways in which a business, governed by an LLC agreement, can continue operations when an owner/operator dies or experiences incapacity. 

Business continuity planning becomes more involved when a business has multiple members, partners or employees. What happens if one partner passes away or becomes incapacitated? Answers to this question are varied, but here are some of the most common ways to address this situation.

1. Properly prepared operating agreements: Many times, business partners create an LLC for liability protection but fail to craft comprehensive operating agreements citing no need for “that mumbo jumbo”. Operating agreements play a critical role when death or incapacity takes place. Topics that should be included in such agreements are (at minimum):

• Company’s contact information
• Listing of all partners names, roles, and responsibilities
• Listing of percent of shares owned by each partner
• Emergency operations policies and procedures
• Disability and death planning
• Guidelines for business meetings, taking votes and financial decision making/accounting

1. Buy-Sell Agreements: In the same vein as an operating agreement, yet different, a buy-sell agreement outlines, in contractual language, specific occurrences that automatically trigger the disposition of business shares should a partner retire, pass away, become disabled or just leave the business. This type of agreement creates valuation mechanisms as well as guidelines for the how and the who of the sale and purchase. 
2. Key-Person Life Insurance: Key-person insurance is a type of life insurance for which the business pays the premiums on behalf of an owner or executive. The insurance payout can be used for many things including business operations, payroll, and capital expenditures. It is also a great way for remaining business partners to potentially buy the shares of a deceased partner from an heir if necessary.

It is important to plan, IN ADVANCE, for the distribution of your personal assets as well as the distribution of business assets. Email us or comment below to learn more about how business continuity planning can benefit your business and your family. 

Continuity refers to something occurring in an uninterrupted state or on a steady and ongoing basis. Today begins a 3-part series about the importance of business continuity planning. Whether you own 1 rental property, run a small business employing 3 people or have a family farm, it is EXTREMELY important that you not only plan for the distribution of your personal assets but that you plan for the perpetuation of business operations.

A very common small business structure is the single-member LLC. LLCs are commonly used for rental properties or a service business. LLCs offer great liability protection paired with simple management, but their simplicity can often leave problems when an owner becomes incapacitated or passes away.

A properly formed LLC should have an operating agreement that explains what happens, and who is in charge when the owner passes away or becomes disabled and unable to guide business operations. Why? Because business owners owe it to every person affected by their business to have a continuity plan in place. Employees, customers, vendors, and family members are all impacted when the owner of a business is no longer able to oversee daily operations. 

REAL-LIFE EXAMPLE

It is common for an LLC to have bank accounts titled in the name of the LLC. Often, the single-member (business owner) is the only person with access to the funds in those bank accounts. Unlike an individual checking account, a business account cannot pass upon death through a beneficiary designation. A bank holding these accounts will treat the business accounts as part of the deceased person’s estate, requiring a court order to access the funds. This presents a problem when the funds are needed to either keep the business going or to wrap-up business transactions. To keep the LLC from coming to a standstill upon incapacity or death of the owner, an operating agreement can appoint another responsible party to carry on the business.

Do you have an LLC? Does it have an operating agreement that details who will be in charge in times of death or incapacity? Comment below or schedule a free consultation to learn more about LLC management best-practices.

“Back in the day”, one of the worst things that could happen was if someone read your diary. Now, with social media, kids get mad if their Tik Toks or Insta Stories don’t get enough views. Despite the prevalence of over-sharing in our lives nowadays, some people still value their privacy.

Somewhere between having a house on a secluded mountain top in full Ron Swanson mode and installing a live stream camera in your living room 24/7, there is a plugged-in life with basic privacy protections. However, executing a Last Will and Testament is NOT one of the activities that ensures privacy. 

What most people don’t realize is that even if a will is written by the best lawyer ever and is “self-proved” by being executed with a notary and two witnesses, a will still has to be proven in court to have legal effect. Not only are there discussions in open court regarding your estate, but most of what is discussed is put in writing and is easily accessible in a public records search. 

Examples of things that are made public when your will goes through probate in the courts:

Are you, like Ron Swanson, wondering how to put a stop to this public record of some of your most personal business? The easiest way to create the most protection against this kind of invasion is to establish a living trust. A living trust does all of the things you know that a will does: puts someone in charge after you die and spells out who gets what of your assets. However, a living trust does all the things a will does (and more) with zero involvement from the courts. If your estate plan doesn’t have to go to court, then it isn’t made public. If it isn’t made public, the world won’t be able to peculate why you left 5% of your estate to your daughter and 95% to your alma mater. 

You don’t care what happens after you die? Fine. A trust can also help avoid guardianship proceedings while you’re still alive. When you create your trust, there is almost always a provision that leaves an option for your successor trustee to take over your affairs while you’re still alive if you become incapacitated. The alternative to this is a guardianship proceeding in court. This is a lengthy, expensive, and sometimes emotionally draining process where your loved ones actually have to sue you in court to have your adult rights taken away so that you can be cared for. This involves extensive digging into your financial and medical records in open court. If you want to protect your privacy and plan to avoid potential guardianship proceedings in the future then a trust is for you!