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According to the Kauffman Foundation, people aged 55 to 64 started more businesses in 2009 than ever before. While it is important for all business owners to have legal operating documents in place, older entrepreneurs should also include a business "will" that addresses what happens to the business if the owner can no longer run it. It should cover what happens if you retire, die, are disabled, or otherwise can’t operate your business. Here are some tips for creating a business will:
1. Keep your business and personal identities separate. When you start a business, you take on business liability that you never had as an employee. To protect personal homes, retirements funds, and other assets, it is important to create a legal entity—an LLC or corporation—that takes on the business liability. That way, if something goes bad with the business, your personal assets are protected. Likewise, if something happens to you, the business can still operate.
2. Plan for succession. What happens if you retire, die, or are disabled? It’s not always a pleasant thought, but all those situations should be addressed. Ideally, the business will continue to fund your estate even if you are no longer involved. In cases where there are partners, those people may continue to operate the business. If so, the business will in the operating/shareholders agreement may obligate the company or surviving owners to purchase the interest of the person no longer involved. In other cases, the business will may call for the transfer of the business to a family member or employee. Alternatively, it may be best to sell the business. With so many possibilities, it’s important to make one’s wishes known before anything bad happens.
3. Let the business fund your estate. Entrepreneurs put a lot of time, resources, and energy into running and expanding their businesses. All that should not go to waste when you can no longer participate. In cases where there are multiple owners and the business will calls for them to buy out the one who can no longer be involved, it is often smart to purchase insurance to fund that buyout. That way, money is available to pay the exiting owner or his/her estate. Many insurance plans and options are available, but the important thing is that the "business will" requires the company purchase it and pay the premiums.
4. Avoid disputes. A clear written agreement will eliminate confusion and conflict over who will be entitled to the business when the owner exits. It should also address the manner in which the successors will assume ownership (whether they will pay for their ownership, for example, and if so, the terms of the purchase). In addition, together with personal estate documents, the agreement should identify a person or establish a process to make decisions regarding business operations and disposition in the former owner’s absence. Having all this in place will make it less stressful, and prevent disputes, for those who assume responsibility for the business.
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