Business Succession Attorney in Nashville, Tennessee

Business succession planning is a critical legal strategy for business owners, particularly in states like Tennessee, where the economy is driven by a variety of industries ranging from agriculture and manufacturing to healthcare and technology. Business succession allows for the continuity of the business when an owner or key executive departs.

From a legal perspective, business succession in Tennessee encompasses a broad range of issues, including the legal structures that govern businesses, estate planning, and tax implications, as well as the intricacies of the Tennessee business laws that affect the transition of ownership and management.

Based in Nashville, Tennessee, Brazil Clark, PLLC aims to make sure business owners’ desired plans for succession are carried out with as few complications as possible. With the help of our business succession attorney in Nashville, you can guide the future of your business.

What Is Business Succession?

Business succession is the process of planning for the transfer of ownership and management of a business from one generation to another, or from one owner to a new one.

The goal is to protect the long-term interests of the business, employees, customers, and other stakeholders by making sure the transition occurs in an orderly, efficient, and legally compliant manner.

Business succession is often thought of as a tool to prepare for predictable events such as retirement, but it can also be crucial for handling unforeseen circumstances such as death, incapacity, or voluntary departure of a key individual.

The legal aspects of business succession involve several considerations:

• Ownership transfer: The legal mechanism by which the ownership interest in the business is transferred to a new party.

• Management transition: Making sure the new leadership understands the legal and financial responsibilities of running the business.

• Tax implications: Considering the tax consequences of business transitions, including estate taxes, capital gains taxes, and business income taxes.

• Legal documents: Drafting key documents such as wills, trusts, buy-sell agreements, and shareholder agreements to facilitate a smooth transition.

• Dispute resolution: Preventing or resolving conflicts between business owners, family members, or stakeholders that may arise during the transition.

A skilled business succession attorney in Nashville can help business owners better understand the legal matters associated with succession, including the specific requirements for different business structures.

Legal Structures and Business Succession in Tennessee

In Tennessee, business owners must first understand the type of legal structure under which their business operates, as the structure has significant implications for succession planning. 

The major business structures in Tennessee are sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Each structure comes with different legal requirements and considerations for succession planning. A business succession attorney in Nashville can help you better understand these details.

Sole Proprietorship

A sole proprietorship is the simplest form of business organization, where the owner is personally responsible for the business’s debts and obligations. Since a sole proprietorship has no legal distinction between the owner and the business, succession planning is straightforward but must still be carefully considered.

Upon the death or incapacity of the owner, the business doesn’t automatically continue unless provisions are made in advance. Typically, the assets of the business are passed on according to the owner's will or through the probate process. If the business is to continue under new ownership, it may need the sale of assets or the creation of a new entity to continue operations.

For a business to survive beyond the owner’s death or incapacity, the sole proprietorship may need to be transitioned to a partnership, LLC, or corporation, where the structure allows for continuity of ownership.

Partnerships

A partnership is a business owned by two or more individuals who share in the profits, losses, and liabilities of the business. In Tennessee, general partnerships and limited partnerships are the two primary types of partnerships.

Partnership succession planning typically involves creating a partnership agreement that addresses what happens if a partner dies, becomes incapacitated, or retires. The agreement should include provisions for the buyout of the deceased or retiring partner’s share, how new partners will be admitted, and how the business will continue to operate.

• General partnership: In a general partnership, all partners share equal responsibility for the business’s debts and operations. If a general partner dies or withdraws, the partnership is typically dissolved unless the remaining partners decide to continue with the business. A buy-sell agreement can provide a structure for the buyout of the deceased or withdrawing partner’s share.

• Limited partnership: In a limited partnership, there are both general partners (who manage the business) and limited partners (who are passive investors). Succession planning in a limited partnership involves similar considerations as a general partnership, but with additional attention paid to the roles of the limited partners, who may not have any management responsibilities.

Limited Liability Company (LLC)

LLCs are one of the most popular business structures in Tennessee due to their flexibility and liability protection. An LLC is a separate legal entity that shields its owners (called members) from personal liability for the company’s debts.

Tennessee law allows LLCs to have an Operating Agreement that governs the business’s day-to-day operations and includes provisions for succession planning.

LLC members can decide how ownership is transferred in the event of a member’s death, retirement, or incapacity.

One common tool used in LLC succession planning is the buy-sell agreement, which dictates how ownership interests in the LLC are sold or transferred in the event of a member’s death or departure. The LLC’s operating agreement may also specify the procedures for admitting new members and distributing the business’s profits or losses.

LLC succession planning also involves determining how the company’s management will continue. Members can designate managers or executives to take over leadership, or they can opt for a more informal management structure. Additionally, the members can decide whether the LLC will continue to operate upon the death of a member or whether it will be dissolved.

Corporations

Corporations are separate legal entities that provide limited liability to shareholders, meaning shareholders aren’t personally liable for the company’s debts. In Tennessee, corporations are governed by the Tennessee Business Corporation Act.

Business succession in corporations is typically governed by shareholder agreements, which dictate how shares of the corporation are transferred upon a shareholder’s death, retirement, or incapacity. These agreements often include buy-sell provisions, which provide a mechanism for the surviving shareholders to purchase the shares of a deceased or retiring shareholder.

Corporations can also have boards of directors and officers who are responsible for managing the day-to-day operations. Succession planning for corporations often involves identifying future leaders who can take over these key roles and making sure the business remains viable after the transition.

Next, let’s look at how estate planning affects business succession in Tennessee.

Tennessee Estate Planning and Tax Considerations

One of the most important aspects of business succession planning in Tennessee is estate planning. Estate planning makes sure that the business is passed on in a tax-efficient manner and the owner’s wishes are respected upon their death. It’s crucial to work with a business succession attorney in Nashville who has extensive experience in estate planning.

Tennessee Inheritance and Estate Taxes

Tennessee doesn’t have an inheritance tax or a state estate tax, which makes business succession somewhat easier from a tax perspective. However, federal estate taxes may still apply if the business is valued above the designated exemption limit.

Succession planning should include strategies for minimizing federal estate tax exposure. One common tool is the creation of a trust, such as a revocable living trust, which allows the business owner to transfer ownership of the business during their lifetime or upon their death. 

The use of a trust can help avoid probate and minimize estate taxes. Another strategy is the establishment of a family limited partnership (FLP) or a limited liability company (LLC), which can provide valuation discounts for the business’s ownership interests, reducing the value of the estate for tax purposes.

Gift Tax Planning

In addition to estate taxes, business owners must also consider the potential for gift taxes if they decide to transfer ownership of the business during their lifetime. The IRS imposes gift taxes on transfers of assets that exceed a certain threshold, although there’s an annual gift exclusion limit.

Business owners in Tennessee should work with estate planners to structure gifts in a way that minimizes taxes while still making sure that the business is passed on according to the owner’s wishes.

Legal professionals can also help business owners prepare the necessary documents associated with succession.

Key Legal Documents in Business Succession Planning

Effective business succession requires the use of various legal documents to make sure that the transfer of ownership and management is conducted smoothly. These documents help define the rules and processes that govern the business transition.

Will and Trust

A will is the primary document that directs the distribution of a deceased person’s estate. In business succession planning, a will should specify who will inherit ownership of the business. A trust can be used in conjunction with a will to provide more control over how the business is managed after the owner’s death.

Buy-Sell Agreements

A buy-sell agreement is an essential document in partnership, LLC, and corporate succession planning. This agreement outlines the terms under which ownership interests in the business will be transferred in the event of death, retirement, or disability. It typically includes valuation methods, payment terms, and procedures for the buyout of a departing owner’s interest.

Partnership Agreement / Operating Agreement

For partnerships and LLCs, the partnership agreement or operating agreement sets out the rules for the business, including provisions for the transfer of ownership, dispute resolution, and the succession of management.

A business succession attorney in Nashville, like those are Brazil Clark, PLLC, can explain all these documents to you in further detail to provide you with a better understanding.