Business Succession Planning in Calabasas

Business Succession Planning in Calabasas

Calabasas has a dense population of owner-operators: production and post companies, professional practices, property management, consultancies built around one person’s name and relationships. In most of them the owner is the business, and the plan for the day that stops being true has not been written.

Succession comes down to two questions. Who holds legal authority to act, and on what terms does an interest change hands.

Read the buy-sell before anything else

If the company has a buy-sell, shareholder or operating agreement with transfer provisions, that document generally decides what happens to an owner’s interest on death, and it overrides the trust.

The recurring defect is the price. A fixed dollar figure agreed years ago, or a formula tied to a multiple nobody has revisited, can transfer a valuable interest for far less than it is worth. Owners assume the agreement protects them. Often it protects the other side.

The second defect is funding. A buy-sell that obliges surviving owners to purchase the deceased owner’s interest is only as good as the money available to do it. Without insurance or a funded reserve behind it, the obligation is a promise that cannot be kept, and the family ends up negotiating rather than being paid.

The authority gap while probate runs

If the ownership interest is not held in a trust, it goes through probate, and during that period there may be nobody with clear legal authority to sign contracts, manage employees, deal with the bank or make decisions. For a business with payroll and client commitments, months of that does real damage, and clients do not wait.

Holding the interest in a funded trust removes the gap. A successor trustee has authority immediately, without a court appointment, subject to whatever the operating agreement says about who may hold and vote the interest. That last point is why the two documents have to agree.

Deciding honestly who should take it

The default assumption is the children. Often that is wrong, and saying so early is more useful than drafting around it. One child works in the business, or none of them do, or the one who wants it is not the one who can run it.

A sale to a third party or to key employees is a legitimate and often better answer. So is winding the business down deliberately rather than leaving heirs to discover it has no value without the owner. That decision belongs to the owner while they can make it.

Questions Calabasas clients ask

We have a buy-sell from years ago. Is it still good? Check the price terms first. A fixed value or an untested formula can transfer your interest for far less than it is worth, and the agreement generally controls over your trust. It is the most common expensive defect I find.

Is the buy-sell funded? Ask, because many are not. An obligation for surviving owners to buy your interest is only worth the money available to honor it. Insurance or a funded reserve is what turns it from a promise into a payment.

What happens to the business if I die without a plan? If the interest is not in a trust it goes through probate, and there may be nobody with clear authority to sign contracts, manage staff or deal with the bank for months. For a service business that is often fatal to the client base.

Can my trust just hold the company? Usually yes, and it should, but the operating agreement has to permit a trust to hold and vote the interest. Some restrict it or require member consent, which is easy to arrange now and difficult later.

What does this cost? Entity formation is flat-fee: $2,500 single-owner, $5,500 multi-owner, $4,500 for a professional corporation. Contract review, standalone buy-sells and ongoing advisory are $500 per hour.

Talk to Eric or call 805-244-5291. I serve Calabasas and the surrounding Conejo Valley communities.

For the practice-area page and the full fee structure, see business law, and entity formation for setting the entities up. To keep the interest out of probate, see living trusts in Calabasas.