What Small Business Owners Need to Know About Succession and Fair Market Value

A business succession plan is a key component for determining what happens to your company after you choose to exit the company during your lifetime or after you pass away. Working with a qualified and knowledgeable estate planning attorney is one of the best ways to incorporate your business considerations and to ensure that you have a clear structure and intention for the future.

The value of the business is one of the most complex aspects of planning for a future sale. It is very difficult to determine a realistic fair market value for the business, especially if the primary owner of the company, you, has passed away or is incapacitated and unable to make decisions or share information.

The business owner is typically not the best individual to value the business either, they may believe that the business’s value will be significantly reduced upon their death or may overvalue it.

However, it is critical to determine the value for the business for estate tax purposes, as well as for any beneficiaries who may inherit the business. Furthermore, if you will not pass on the business to anyone in your family, you still need a method for determining fair market value.

The company may be sold as part of your estate plan depending on the structure of the business and anyone else who may hold ownership in it. Recognizing fair market value can allow an executor or other allowed company party to make important decisions about the future of the company, such as a fair value to sell it.



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