As a successful business person, you have likely put in a great deal of effort to build a profitable business. You may be planning for your retirement or your children’s education, expecting the business to generate sufficient income to fund these goals. You may also expect that upon your untimely demise, the business will provide funds to support your family members’ lifestyle. However, without proper planning, these objectives may not be fulfilled.
Your exit from the business due to premature death creates problems that could threaten the business’s survivability. As the key decision maker, your unplanned exit creates uncertainty for the business’s future. Banks may lose confidence in the business’s ability to repay loans, and suppliers may stop credit lines. Employees may feel uncertain about their job security, and the business may lose its competitive edge. Without proper planning, the future of the business is at risk, and it may ultimately fail.
The first concern of business owners is the exit from the business due to death and disability. Depending on whether you are a sole proprietor or in a partnership or running a private limited company, you have different things to worry about. The death of a sole proprietor usually means the demise of the business as well, unless a successor has been identified, and proper planning has been put in place. In such a situation, there is no way it can be used to fund the family’s financial objectives, and it will be hard to sell away the business as there is practically no value attached to it.
For a partnership, the death of one partner also means the termination of the business from a legal standpoint. The heirs of the deceased partner can form a new partnership with the surviving partners; however, this is subject to all partners agreeing to the new partnership, which can prove difficult. The surviving partners can also offer to buy the interest of the deceased partner’s estate. However, the problem here is for all parties to agree to the sale and purchase, especially the price. The deceased partner’s family may want to be the silent partner of the business, but this may be unfair to the surviving partners as they now have to work harder without the contribution of the deceased partner and still receive the same sharing of profits.
For a private limited company, the situation is almost similar to the partnership. Although in this case, the company does not automatically get wound up, the shares of the deceased shareholder get passed to the estate. If the deceased owner’s family wants to be admitted as new shareholders of the company, they need to have a proper understanding of the company’s operations and be willing to participate actively. Otherwise, it is best to consider selling the shares to a third party.
The second concern of business owners is the exit from the business due to retirement. Unless you desire to run your business until you are physically unable to do so, you will most likely want to hand it over to someone early and enjoy retirement. If you do not plan early for it, it is unlikely you would be able to retire.
The ideal way to plan for legacy planning is to start as early as possible. You need to have a succession plan in place, identifying who will take over the business when you retire or if you pass away. You need to groom your successors to ensure that they are ready to take over the business, and you need to communicate your plans with your family members and key employees.
You may also want to consider creating a trust to hold your business shares. A trust can provide benefits such as asset protection, tax efficiency, and continuity of management. It can also ensure that your business shares are distributed according to your wishes and that your heirs receive financial support in a structured manner.
Here are some steps to develop a legacy plan for your business in Singapore:
- Define your legacy goals: The first step to creating a legacy plan for your business is to define your legacy goals. What do you want your business legacy to be? Do you want to ensure that your business continues to operate after you retire? Do you want to ensure that your family members or key employees take over the business? Or do you want to ensure that your business contributes to a charitable cause? Defining your legacy goals is important as it will guide you in creating a plan that is tailored to your specific needs.
- Identify key employees and family members: Once you have defined your legacy goals, the next step is to identify the key employees and family members who will be involved in the legacy planning process. These individuals will play a crucial role in ensuring that your legacy plan is executed properly, so it is important to choose them carefully.
- Create a succession plan: A succession plan is an important component of any legacy plan. It outlines the process of transferring ownership and control of your business to the next generation of leaders. Your succession plan should identify who will take over the business, when the transition will take place, and how the transition will be managed.
- Develop a financial plan: A financial plan is another important component of your legacy plan. It should outline how your business assets will be transferred to your heirs or beneficiaries, and how taxes and other expenses will be paid. You may want to consult a financial advisor or estate planning attorney to help you create a comprehensive financial plan.
- Consider charitable giving: Charitable giving is an excellent way to leave a lasting legacy. You may want to consider setting up a charitable foundation or trust that will continue to support causes that are important to you and your business.
- Communicate your plan to key stakeholders: Once you have created your legacy plan, it is important to communicate it to key stakeholders, including family members, employees, and business partners. This will ensure that everyone understands your wishes and is prepared to execute your plan when the time comes.
In conclusion, legacy planning is an essential part of running a business in Singapore. By following these steps and working with trusted advisors, you can create a legacy plan that ensures your business continues to thrive for generations to come.