Business Succession Planning in Tarzana

Business Succession Planning in Tarzana

The general problem, that a buy-sell agreement overrides your trust and that probate creates an authority gap, is covered on the business law page.

Tarzana has an unusually high concentration of licensed professional practices along and around the Ventura Boulevard corridor, and for those owners there is a constraint that changes the whole plan.

Your family may be legally barred from inheriting the practice

California professional corporations are subject to ownership restrictions. Shares generally may only be held by licensees in the same profession, and the governing statutes and each licensing board’s rules set out what happens when a shareholder dies.

The practical effect surprises people. Leaving your practice to your spouse in your trust does not work if your spouse is not licensed in your profession. The shares typically have to be transferred or redeemed within a defined period after death, and if nothing has been arranged, that happens under time pressure at whatever price is available.

So the plan for a professional practice is not a transfer to the family. It is an arrangement for the shares to be bought by someone who may lawfully hold them, with the proceeds going to the family. That is a different document and a different conversation from an ordinary succession plan.

Funding is what makes it real

A buyout obligation without money behind it is a promise. If your partner or an associate is supposed to purchase your interest, ask what they would actually use. Most practices at this scale cannot produce a six or seven figure sum on short notice while also absorbing the loss of a producer.

Life insurance owned appropriately is the standard answer and it is inexpensive relative to the exposure. Structuring who owns the policy matters, and getting that wrong can create a tax problem where there was not one.

If you practice alone

A solo practice has no partner to buy it, which makes the question harder and more urgent. The realistic options are an arrangement with another practitioner to take over the patients or clients, a sale negotiated in advance with terms already agreed, or an orderly wind-down.

Even a wind-down needs planning. Client or patient records have retention and notification obligations that survive you, and the responsibility for them does not simply fall away. Leaving that to a grieving spouse who is not licensed and does not know the rules is the outcome to avoid.

Questions Tarzana clients ask

Can I leave my practice to my spouse? Generally not, if it is a professional corporation and your spouse is not licensed in your profession. Shares usually may only be held by licensees, and they typically must be transferred or redeemed within a set period after death. The plan is a funded buyout with proceeds to your family instead.

Who would buy my interest? A partner, an associate, or another practitioner under an arrangement made in advance. The important question is not who but with what money, which is why funding the obligation matters more than drafting it.

I practice alone. What are my options? An arrangement with another practitioner to take over the clients or patients, a pre-negotiated sale, or an orderly wind-down. All three work far better decided in advance than discovered by your family afterward.

What happens to client or patient records? Retention and notification obligations survive you and do not fall away because the practice closed. Leaving that to an unlicensed spouse who does not know the rules is the situation worth planning around.

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 Tarzana and the surrounding San Fernando Valley communities.

For the general framework and full fees, see business law and entity formation. To keep the interest out of probate, see living trusts in Tarzana.