Some events bring joy and some bring sadness. As a business owner, are you prepared for these events?
Our team has encountered these transition events that business owners face. We work through these issues as a team and make sure that the client knows that we are behind them the whole way.
A recent example; a partner was retiring and another was joining the partnership. One issue we had to address was how payments to the retiree were treated for income tax purposes.
The IRS allows different income tax treatments based on how the partnership agreement defines payments to a retiring partner. We looked to the partnership agreement to determine if it reflected the intentions of all the partners; new, retiring, existing.
What about that buy-sell agreement your attorney keeps asking you about? What would happen if you passed away unexpectedly? You’ve spent years creating a business that provides for your family and has value. How will your family be taken care of if the unfortunate happens? Who is going to take your place in the business?
If your business agreement is not clear, how will your family be provided for while this is being decided?
What about your other owners? The outcome could be completely out of their hands.
In coordination with your will and/or estate plan, a buy-sell agreement can be structured to provide income for your family, stability for the business and direction on how you and your other owners want the business to operate.
Are you prepared if an owner becomes disabled? We have found this is where a number of businesses find themselves in a financial predicament. You recently reviewed your agreement and added a clause that addresses if an owner becomes disabled and cannot perform their duties. That’s great, but let’s play this out in an example.
You get a call one day and find out another owner was in an accident. Terrible news to hear. You look at your updated agreement and find that the business will provide two-thirds pay to the disabled partner for a period of one year. The business also has to hire at least one person to fill this owner’s multiple hats. This means additional payroll and benefits, on top of paying the disabled owner two-thirds pay. Can your business afford a full year under these financial conditions?
Is there a solution? Of course—in fact, there are a number of ways to structure a business agreement to provide for a disabled owner while not causing a financial burden on the business.
At A&O, we tackle these and other difficult topics with you. We understand that each business is unique and each business owner has different individual situations—which is why our team strives to provide more value to the success of your business. A&O offers no-cost initial meetings so you can see if we are the right fit for you.