Royal Law Firm PLLC

1629 K Street, Suite 300

Washington DC 20006

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Protect Your Pride: Building Communities and Legacies through Business Succession Planning

In 2009, the Royal Law Firm PLLC was proud to be one of few firms securing the inheritances and ensuring decision-making for healthcare and finances through some creative estate planning for same-sex couples (same-sex marriage wasn’t legally recognized then in the two primary markets the firm practiced in: New York or New Jersey).  Since then, the LGBTQ community has made significant strides and has secured some more favorable legislation. Notably, the community also has a strong trail of success in entrepreneurship, but their legacy is essentially nonexistent.

 

Seventy-eight percent of LGBTQ small business owners don’t have a succession plan in place, CNBC recently reported. Business succession planning is not merely about the continuation of a business, it is about continuing a legacy, whether personally, for loved ones, or for the greater community.

 

In the simplest definition, succession planning passes leadership of a business to the next generation. For entrepreneurs, this transition can be more emotional than for large businesses where routine leadership changes are common.  Entrepreneurs are the life of the business, so when they no longer run the business, how can it continue? This is the very question a proper succession plan answers and it involves comprehensive business succession on leadership and management, operational processes, financial and tax planning, and the entrepreneurs personal asset protection and wealth planning.

 

In family owned companies, proper succession plan can not only continue a business long after the founder or existing leadership no long actively runs the business whether due to retirement or demise, but the plan can ensure retention of the core values of the founder and build on the founder’s vision for generations to come regardless of whether any particular generation of family members operate or actively manage the business. Especially for the LGBTQ community, founder values may be impactful to the greater community and lead to revolutionizing the business sector by creating opportunities for an historically marginalized community.

 

Even the most specialized business can be a legacy with a properly constructed succession plan. With the development of the business succession plan and the founder’s and their family’s estate plan, gaps in the existing operations and processes may be revealed. Qualified advisors who understand business succession planning for entrepreneurs and founders, especially, also realize that business strategy, personal dynamics and values, and even the fundamental business structuring and relationships are part of the process to build and counsel on proper business succession planning.

 

The entire life cycle of the business from the inception of the idea matters. At each step, a combination of factors should usually be considered, including legal, tax law and strategy, business law and risk, operations, opportunities, personal factors, and short and long term impact.

Businesses should start with a sound business plan in place but a good business plan and strategy should incorporate a sound legal foundation. Even the structure of a business, LLC, S corporation, C corporation, sole proprietorship, etc. is not merely a decision based on tax implications or compliance burden, as is often the focus in accounting. A business entity structure decision is based on a combination of factors, including, tax, liability, compliance requirements, overall business strategy, short and long term goals, and even personal impact goals.

 

For example, a startup bakery with a dream of developing an internationally franchised model for inclusive bakeries and coordinating efforts in philanthropy may not be best served by a single member LLC. International transactions and relationships can significantly complicate both the tax and liability implications. The appropriate structure for a specific business can greatly impact reach and scaling potential.

Once the business is established, operations require properly drafted and negotiated contracts between vendors, service providers, customers, affiliates, and a continuous oversight and protection of the business brand, trademarks, trade secrets, copyrights, business processes and more.

 

Protection of intellectual property also goes beyond registration with the USPTO. Internal and external agreements, including employment agreements, non-disclosure agreements, asset protection strategies, and the individual owner’s priorities, succession planning, and estate planning incorporates rights, valuation, and transfer restrictions and requirements which are critical parts in a comprehensive business succession plan. Termination, sales, transfers, and restructuring of the business can be restricted and controlled through business counsel and succession planning. Tax benefits, allocations, valuation of equity interests, and other financial benefits can also be defined and controlled through the business corporate documents and contracts such as, shareholder agreements, benefits structuring, executive compensation, and buy-sell agreements (mergers and acquisitions).

 

Social responsibility values of business orders can also be integrated into a proper business plan by planning for philanthropy not only for the business but also for the individual owner. Charitable planning involves not only direct contributions to favored causes but can include business supported foundations and other charitable vehicles, and also personal planning such as trust funding using the business interests. Proper planning for the business owner should protect the individual and the business and address factors beyond law, tax, and liability. Succession planning incorporates values and beneficiaries into preserving and growing the business owner’s legacy.

 

Business owners in the LGBTQ community have often overcome unique barriers in their pathways to success. The values and priorities of the business owner can be integrated into a business succession plan so that the legacy and the business is kept intact for generations to come.

 

Even if the interest transfers to a trusted beneficiary, that individual may not be able to or want to operate or manage the business successfully or continue it. A business succession plan can provide systems of support and structure to ensure the business continues its legacy regardless of the direct involvement of the equity owners and also control the operations and ownership through multiple generations.

 

When the firm represented same-sex couples before legalization of same-sex marriages, our clients recognized that without the iron-clad documents to protect and care for their partners, their loved ones would be left with nothing. Even worse, intimate decisions about their healthcare and finances may be made by family members who never supported them and their assets used against the very inclusive values they struggled to preserve. While legally recognized marriages provide a greater level of protection (although not as comprehensive, certain, or durable as estate planning), businesses don’t have any protection without succession planning. Impact, whether, financial, personal, or social would be minimized or even be nonexistent once a business without a succession plan ceases to be operated by the founder and a legacy would be lost.

 

Succession planning is a secure and predictable necessity to preserve a legacy. These legacies can inspire communities and exemplify values that we seek to instill in future generations. Every business owner needs a business succession plan. We often help our clients determine the scope of the plan and the assets and values they need to protect. Planning usually begins with a dialogue with a trusted business advisor.