Business continuity is critical to its success, but executing a successful business succession plan can be challenging.
This guide aims to help with that. It explains business ownership transfers in Georgia and strategies to ensure a successful transition.
Types of Business Succession
There are two main types of business succession:
- Internal succession is when an owner transitions ownership to someone already within the company.
- External succession is when an owner transitions ownership to someone outside the company.
The type of business succession influences what legal documents will be necessary. Internal successions include buy-sell agreements and operating agreements. External successions require more documentation, such as stock certificates.
Forming a Business Succession Plan
Generally, you’ll likely need to develop a succession plan and an ownership transition plan. A succession plan outlines who will take over the business operations. An ownership transition plan details the transfer of ownership from one generation to the next.
In creating a comprehensive plan, we generally recommend the following:
- Analyzing the business’s current structure and operations and determining what should stay consistent in future generations;
- Considering the tax implications when transferring ownership and assets;
- Outlining who will be responsible for what, including duties and objectives for all involved in the transition;
- Ensuring the plan correctly accounts for legal and financial considerations; and
- Revising the plan regularly with experienced legal counsel or professionals specializing in business succession planning.
These steps help ensure the long-term success of your company.
Transferring Ownership and Assets
How you transfer ownership and assets depends on the type of business you’re running and its ownership structure.
As mentioned above, two ways to transfer ownership are through a buy-sell agreement or a stock purchase agreement. Both have advantages and disadvantages, so it’s essential to evaluate each option before deciding.
A buy-sell agreement typically sets out who has the right to buy or sell a business and sets the conditions for such transfers, including pricing, payment terms, and other details for both buyer and seller. The terms should clearly lay out what is expected of each party when transferring ownership.
Stock Purchase Agreements
A stock purchase contract is similar to a buy-sell agreement but is used when transferring stock or corporate shares instead of an entire business.
It governs the terms of the sale, including pricing, payment terms, delivery of stock certificates, transfer taxes, and any other relevant information.
As with a buy-sell agreement, it’s crucial that both the buyer and seller understand all aspects of the transaction before signing off on anything.
Special Considerations in Georgia
When it comes to business succession in Georgia, there are a few special considerations to keep in mind:
Business succession planning in Georgia often involves complex tax issues.
As your business passes to the next generation, you should consider the potential tax implications. Working with experienced professionals helps ensure your business is structured correctly and unnecessary taxes are avoided.
Here’s a quick rundown of some of the taxes that may apply:
- Capital Gains Tax
Capital gains taxes may come into play when transferring ownership and control over assets. Capital gains taxes are a tax when an asset is sold. This tax applies even if you are gifting, rather than selling, your business or assets to someone else.
- Estate Tax
In some cases, estate taxes may also be applicable when transferring assets during a business succession. The current state estate tax threshold for Georgia residents is $12.92 million, with a maximum allowable rate of 40%.
- Gift Tax
Planning to give away part or most of your business as a gift to another person or entity during the succession process may be subject to gift taxes.
Understanding the tax implications behind business succession can help you avoid surprises when planning for your company’s future.
As your company transitions from generation to generation, you’ll want to ensure liability protections are implemented. This includes ensuring that agreements with vendors and customers remain binding and everyone involved is on the same page.
A business succession plan should also consider local regulations that may affect the plan.
For example, Georgia requires businesses to report certain transactions with the Georgia Department of Revenue and Secretary of State Office as part of their business transition process. This means that if you’re transitioning ownership in your business or selling assets, certain filings may need to be made with those offices for your transaction to be considered a valid form of business succession.
Business succession planning can be a complicated process. A qualified attorney can help you navigate the legal complexities of business succession and provide valuable guidance on how to structure the transition for maximum benefit.
Contact Us Today
Succession planning is an essential step for any business owner. Having a plan simplifies the transition and ensures the success of the business. With the right strategy in place, you can be sure your business will be in good hands.
The attorneys at Thrift McLemore can help. Call us at (678) 784-4150 to schedule a free consultation.