People who start or take over successful businesses have many responsibilities. One of their obligations is the preservation of the company for future generations of owners and for the long-term well-being of employees. The structure of the business and ownership arrangements can have a direct impact on the company’s stability during unpredictable times.
One of the more common solutions utilized by business owners is to transfer ownership of an organization to a trust as they begin succession planning or addressing their long-term legacy. What are some of the benefits of using a trust to hold ownership of a business?
1. Reducing transitional strain
Transitional times tend to be some of the most dangerous moments for businesses. Continual management by a trustee helps eliminate transition strain. The business owner establishing a trust gets to select the trustee who oversees company operations. They can choose someone who is capable of managing the organization and putting its best interest first.
When the current owner must step down from their leadership position, the trustee can continue to provide support. Their ongoing involvement and pre-existing awareness of company operations can limit the disruptions that occur when a leader suddenly becomes incapacitated or dies.
2. Preventing the sale of the company
Those who have spent their lives building a company from the ground up or growing a small family business into a successful organization likely view the company as a key part of their legacy. The idea that their beneficiaries might sell the business to a competitor or dismantle the company and sell its components for short-term profit can be disheartening, to say the least.
Creating a business trust allows the current owner of a business to provide clear instructions about the future of the company. They can prevent the people who might benefit from the company’s ongoing profitability from putting short-term windfalls ahead of long-term stability. They can also protect their clients, customers and employees from the hardship that sudden business closure might generate.
3. Enhancing liability protection
A trust is a separate legal entity from the person who creates the trust. The decision to establish a trust to hold a business can create an additional layer of liability protection for the owner and for the organization as well.
In scenarios where a business owner worries that they might divorce in the future or that the business might face lawsuits, establishing a trust can be a way to protect the organization from outside pressure. The use of a trust to hold the business can also limit personal exposure to liability should the company fail or face costly lawsuits.
Exploring creative estate planning strategies can be beneficial for those who own valuable resources like businesses. Companies often require special consideration and planning as people think about retirement and their final legacy.