International Door & Operator Industry

NOV-DEC 2015

Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.

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Page 15 of 128

LEGAL&LEGISLATION Continued on page 14 Legal Issues for SUCCESSION PLANNING Legal Issues for SUCCESSION PLANNING By Brian J. Schoolman, Safran Law Offces V O L U M E 4 8 I S S U E 6 D E C E M B E R 2 0 1 5 13 One of the most frightening thoughts for a business owner is contemplating when he or she has to pass the baton to the next generation. At some point, the owner is not going to keep being able to lead his company, whether because of old age, poor health, fagging desire, or untimely or accidental death. In order to guarantee that the business continues after such an event, the owner has to prepare and plan well in advance for the worst-case scenarios. Being prepared and doing the planning are the purviews of people who understand the business, and who have expertise relating to the fnancial side of the enterprise. But another issue that needs to be considered is making sure those plans comply with and prepare for the impacts of various legal issues. The purpose of this article is to address or touch on some of those potential pitfalls. Type of Business Dictates Type of Succession If the door business being sold is a sole proprietorship or a partnership, then it exists only as an extension of the owners. This can have signifcant liability concerns, but it actually makes it easier to transfer ownership. By contrast, a corporation or LLC has its own legal existence apart from the shareholders or members. As such, transferring ownership and/or control of the business can be a more detailed and technical process. Also of concern in larger companies is that the one leader may not be the only person who departs. If "Jones Brothers Doors" passes from the senior to the junior Jones, there is probably not much institutional shake-up. But when "Jones Brothers, Inc.," a multi-state company, goes through a leadership transition, there may be several other high- ranking people who choose to depart, who are forced to go, or who at least have to be considered, as part of the overall shakeup. Being prepared for the domino effect of these changes, and taking care to preserve the institutional memory of the company, is a must for the succession plan. How Do You Value, and How Do They Pay Assuming the transition occurs as a result of a planned event, and is not following a sudden incapacitation or other crisis, one of the largest factors for both the current and future owners is determining the value of the company. The departing owner is likely to want (or need) to receive value from the incoming owner in exchange for the controlling interest. By contrast, the new owner is not going to want to pay signifcantly more than he believes the business is worth, just for the privilege of owning the company. Thus, both sides are going to have to agree on a process for valuing the company, and when and how the purchase price is to be paid.

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