Business succession planning · St. Louis
Business Succession Planning for Missouri Owners
Business succession planning is the legal and money work of passing your company to the next owner on a timeline you choose. The next owner might be family, a partner, key employees or an outside buyer. For a Missouri LLC, it also means planning around the law that ends an owner’s membership at death.
The four ways an owner leaves
Every owner leaves the business someday. The only question is whether the exit is planned.
TRANSFER TO FAMILY
Ownership passes by gift, sale or inheritance. The legal work is about control. Who runs the business? Who only owns part of it? How do you treat children in and out of the business fairly?
SALE TO CO-OWNERS
A partner or co-founder buys you out. This usually happens under a buy-sell agreement, often over several years.
SALE TO KEY EMPLOYEES
Managers buy in a little at a time, often with you financing the sale. You are both seller and lender. So the security and default terms matter.
SALE TO AN OUTSIDE BUYER
A competitor, a company in your industry or a private investor buys the business. The steps are covered in buying or selling a business.
What happens if there is no plan
For a Missouri LLC, state law fills the gap. It is rarely the answer you would pick. An owner who is a person stops being a member at death. The same happens if a court rules the owner unable to manage his or her own person or property. The person who gets the share does not become a member unless the operating agreement allows it or all members agree in writing.
For a one-owner LLC, that can leave the business with no member. No one may be clearly allowed to sign payroll, renew a lease or talk to the bank. For an LLC with several owners, the survivors may end up running the company next to an estate. The estate gets a share of the money but no vote. Neither result is a disaster if your documents plan for it. Both get expensive if they do not.
The legal pieces of a succession plan
- An updated operating agreement or bylaws. They name the next manager, set out the estate’s rights, and allow your chosen heirs or buyers to become members.
- A buy-sell agreement with a current price and real funding behind it.
- Voting and non-voting shares, where they fit. Ownership can then pass to the next generation step by step, while control passes on its own timeline.
- Authority papers that let a named person run the bank accounts and sign contracts if you cannot.
- Job and retention agreements for the managers the business depends on. See employment agreements and non-competes.
- A match with your estate plan. Your estate planning attorney prepares that plan. Your will or trust and your company documents should point the same way.
Valuation and the federal tax rule
Most succession plans turn on one number: what the business is worth. When you pass the business to family, federal estate and gift tax adds a limit. Under 26 U.S.C. § 2703, the tax value ignores a buy-sell price or limit unless it meets three tests. It must be a real business arrangement. It must not be a way to pass the business to family for less than full value. And its terms must be like those strangers would agree to.
The lesson is simple. A formula picked to keep the price low for your children may bind your family and still be ignored by the IRS. Choose the method with your CPA. When the stakes are high, back it up with an independent appraisal.
A realistic timeline
- Five or more years out: decide which exit is realistic. Clean up company records, contracts and ownership papers.
- Three years out: put the buy-sell agreement, the plan for who manages next, and key-employee agreements in place.
- One to two years out: get a valuation, agree on terms with your successor, and start handing over management.
- Closing: sign the transfer papers and any seller-financing note and security agreement.
- After closing: put your consulting or transition role in writing.
Harjot Singh Padda, JD, handles the business-law side of succession. That means the company documents, the transfer agreements, and working with your other advisers. Mr. Padda starts by reading what your company already has. Most plans are built by updating existing documents, not by starting over.
Common questions
When should I start succession planning?
Years before you plan to leave. Start right away if your company has no current operating agreement. See operating agreements.
Can I give my children ownership but keep control?
Yes. The usual way is voting and non-voting shares set out in the company documents. Start with operating agreements or corporate governance.
What if my partner and I disagree about who takes over?
If your agreement does not settle it, the disagreement may become a dispute. See partnership and shareholder disputes.
How does this fit with my will or trust?
Your company documents and your estate plan must point the same way. The firm works with the attorney who prepares your estate plan. To start, see what to bring to your consultation.
Should I sell to an outside buyer instead?
It depends on who can pay, who can run the business, and what you want for the people who work there. The steps are covered in buying or selling a business.
Related reading
Schedule a business consultation about your succession plan
Business matters start with a paid consultation. Call or text (314) 314-9529, or book a time online.
4477 Woodson Rd
St. Louis, MO 63134
The choice of a lawyer is an important decision and should not be based solely upon advertisements. This page is general information, not legal advice, and reading it or contacting the office does not create an attorney-client relationship.
Sources
- Mo. Rev. Stat. § 347.123 (events of withdrawal). Missouri Revisor of Statutes
- Mo. Rev. Stat. § 347.113 (assignment of membership interests). Missouri Revisor of Statutes
- 26 U.S.C. § 2703 (effect of buy-sell agreements and restrictions on valuation). Legal Information Institute, Cornell Law School