Starting a business takes work. Behind the scenes, there is a lot that goes on, including planning for opening and keeping things running smoothly. While business owners are focused on growing their business, they often forget about their own financial future.
As a business owner, estate planning will help you distribute profit and pass on assets, ensuring that both your associates and your loved ones are taken care of in the event of your death. Below, we’ll go over some basics for each type of business owner: sole proprietorship, partnership, and corporation.
A sole proprietorship is the most basic business structure, with no clear separation between the owner and their business. Technically speaking, the owner owns all of the assets tied into the business, is solely responsible for the business, and also collects 100% of the profits.
Because a sole proprietorship is a basic business structure, thinking of a way to plan an estate is not too complicated. The best options for those with a sole proprietorship would be to either pass on their company to someone willing to take over or sell the company outright.
When you want to have control over your assets and how they are distributed, you need to create a last will and testament. This will serve as a legal document that shows the way you want things done. Before filling one out, consider choosing an executor, which will oversee that all your wishes are fulfilled.
From there, consider your assets and how you want them distributed, organizing everything the way that you want it so that you provide relief for your associates and your family.
Because the assets from your business are all yours, it’s best to take a look at your overall profit and expenses as a guide on which moves you should make next.
If you don’t have a lot of profit and your expenses are high, it could be best to sell. In that case, all remaining value will go toward your estate and be handled as detailed in your will.
Partnerships involve more than one person, with 2 or more in business together. While there are many different structures, the majority of them list all partners as owners of all assets, liabilities, and profits. Because a partnership involved more than one person, there is more to consider than just loved ones and close friends.
Partnerships involve more than one person. It’s because of that that Canada requires a partnership agreement, and failure to do so will result in a default set of rules that might not benefit all members.
When going into a partnership, it’s best to discuss the handling of things, including the death of one of the founding members. This can help all parties secure their assets and get everyone on the same page when it comes to securing both their business assets and their personal assets.
When you have a partnership agreement, that takes precedent over assets that are tied into the company. However, that doesn’t mean that any personal assets are secured. It’s because of that that you should use your will as a way to secure the assets and the future of your loved ones.
If your partnership agreement allows your partners to make decisions on your behalf, your will could be a way to guide them so that all your wishes are fulfilled.
Corporations are a bit more complicated, as they are larger and involve more people and a lot more profits. Privately held corporations are managed by a board of directors and act based on recommendations from their officers.
Because not just anyone can hold shares, those involved with privately held companies possibly own the company or were one of the original investors involved. In either case, you’ll need to take steps to secure your assets.
Because there are so many people involved, there is not usually an issue with death. Where things start to get complicated is if you were the sole owner of the corporation and failed to create a last will and testament to secure your assets.
Corporations will continue to operate, doing so with the help of those appointed to continue business when you’re gone.
The more individuals involved, the more complicated things can be, which is why a shareholder agreement is recommended. In this way, there won’t be too many complicated things to figure out when a death occurs, with the estate designated to those who will keep it running, and your wishes are put in place when it comes to your shares.
Even though you might have your wishes laid out in your shareholder agreement, it’s still recommended to have a will. A will allows you to designate your shares and tell your chosen executor exactly what you want for your last wishes.
There is nothing in the shareholder agreement about securing your loved ones or friends, something you might want to do with help from a will. In a corporation, if you’re the owner, you may need multiple wills, some that deal with your business and shares and others that deal with your personal finances.
Knowing what moves to make to secure your business and assets can get complicated. It takes knowledge about different business structures, different estate plans, and your rights when you’re part of a company owned by more than just you.
Sim is an expert in business assets, helping her clients secure their future and have every last one of their final wishes fulfilled. After one simple call, business owners will have a better idea of how to go about securing their assets while doing what’s best to keep their business running in the event of their death.
Finding a policy is complicated but, when you work with a professional, you’ll get answers and have a plan set in place in no time.
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