Samsung Electronics began in 1938 as a dried fish and produce company in South Korea. Today, it is a worldwide conglomerate that is engaged in manufacturing electronics and military equipment, as well as providing other goods and services. When founder Lee Byung Chul died in 1987, he passed his business onto his son, Lee Kun Hee.
Twenty-five years after his father’s death, Lee Kun Hee is being sued by his siblings for allegedly hiding company assets during the distribution of their father’s estate.
Even if your business does not yet have the worldwide reach of Samsung, estate planning and business succession planning go hand-in-hand for businesses of all sizes. With proper planning, the transition of your business to the next generation can be a worry-free process.
The first step in the process is to assemble a great team to make your business transfer planning proceed smoothly. Your estate planning attorney will need to coordinate with a business attorney and possibly a financial advisor, among others. This may seem cumbersome, but it is essential that the transition of your business be well coordinated.
Next, you need to have a qualified professional appraise your business. Appraising your business will give you and your team an idea of what your needs are and the best method to preserve the business you have spent your life building.
Third, you need to have a strategy for leaving the business. Would you try to sell your business to a third party? Are you considering transferring the business to a current employee? Or, would you like to transfer the business to your family? Each of these methods requires different strategies to make the transfer trouble-free and effective.
Fourth, you should review the documents you used to form your business. These documents may include a provision for the transfer of the business after your death, called a “buy-sell” agreement. A typical buy-sell agreement provides that the other owners of the business have the opportunity to buy out your share of the business before it is offered for sale to other buyers. Buy-sell agreements are important because without them, you might end up as a business partner with your deceased business partner’s spouse, children, or other heirs.
Last, your team must evaluate whether the state or federal government will impose estate tax on the transfer of your business at your death. If you plan on passing the business at your death without adequate consideration and the business’ value is in excess of the estate tax exemption amount (currently $5.12 million in 2012 at the federal level, not accounting for portability), your beneficiaries will have to pay estate taxes on the business. In the State of Maryland and the District of Columbia, estate tax is assessed on assets exceeding $1 million. If the tax on your business is in excess of your liquid assets, your family may have to sell the business in order to pay the tax. However, there are ways to avoid the sale of your business in this situation.
For a common sense approach to your complex business succession and estate planning issues, contact the Law Office of Jane Frankel Sims at (410) 828-7775.