Business Succession Planning and Business Owners

Today, I met with a father and son regarding transferring their business to the son. The son has managed the business for the last 3 years and the father wants to limit his liability. His father is a successful business person and person because the company is a multi-million revenue company. Furthermore, the father already had a trust or otherwise known as "Revocable Living Trust" or "Living Trust".

The goal of the father and son team was to have a smooth transition now. Furthermore, we will help the son with a business transfer strategy for his life that is realistic. We are also assisting the son with developing an effective estate plan for him and his wife. They have three (3) children and guardianship are important matters for his children.

There are two (2) primary ways to purchase a business. A stock purchase agreement or an asset purchase agreement. A stock purchase agreement is where a person purchases the stock of a company. In contrasts, an asset purchase agreement is the purchase of assets. A stock purchase agreement is a good strategy in this case because the son understands the company's liabilities. The son has managed the business for over three (3) years. Second, the father and son want to keep things simple with minimum legal expense. We also will help the son with asset protection of his home. Every business owner should have an asset purchase strategy designed to defeat a personal guarantee. Most vendors will require a business owner to guarantee their debt by having the business owner sign in their personal name. In this example, the only true asset that the son has is a house and retirement accounts. In Illinois, retirement accounts such as 401(k) and IRAs are protected against creditor claims. In Illinois,each spouse gets a homestead exemption of $15,000 to protect their home against creditors. Unfortunately, most business owners at a minimum should protect their home in advance against the claims of creditors or vendors. This is important because in the father and son's example, the son has around $40,000 of equity. Thus, the son and his wife have only $10,000 of equity that is exposed to creditor claims. However, the key issue is if the son gets a judgment against him, the creditor may place a lien against the son's house. Simply put, this means that the son cannot sell his residence without paying off the lien. If the son has creditor problems after 45 years of age, the son may desire to have the option of not paying off the creditor. Realistically, every business owner and person is responsible for their own financial well-being. Retirement is a critical issue and if paying off one's judgment threatens your retirement and financial well-being, possibly it is not a good idea. Thus, placing a house into a private land trust protects against a lien being placed against a house. This means that you can sell your house without ever paying off the lien because the house is not in your personal name. The Trust has legal ownership of the Private Land Trust. In Illinois, Private Land Trust are powerful tools.

Sean Robertson is an asset protection and wealth preservation attorney concentrating in business planning, estate planning, and business transfer planning. Sean Robertson is Managing Partner of Robertson Law Group, LLC. Sean Robertson may be reached at (312)-854-7102 or www.RobertsonLawGroup.com.

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