“Succession Planning”		«BACK
	KM Outlook - Observations From an Industry Leader
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A well-designed succession plan is critical for the success of the typical business. A succession plan should address shareholder relationships, provide for the next generation of leadership and management talent, and facilitate the exit strategy of the owners or key employees. Our observations on some current developments in this area are:

Recently released Statement of Accounting Standards No. 150 substantially changes the accounting treatment of certain contingent obligations.

• SFAS 150 requires that companies treat as debt potential obligations associated with the repurchase of certain shares of stock that are subject to ‘redemption obligations’ (which are commonly found in shareholder or buy-sell agreements).
• The classification as debt can obviously have a significant impact on a company’s balance sheet, as well as any related financial covenants.
• Proper planning and structure can minimize the impact of SFAS 150.

A company’s succession plan must be coordinated with the owner’s estate plan.

• A succession plan can provide the necessary liquidity of the owner’s estate in order to avoid a ‘fire sale’ of the owner’s interest or otherwise create cash flow issues for the estate.

If your company has multiple owners, the succession plan should address the respective shareholders’ rights in the event of the death of a shareholder or other events triggering a transfer of a shareholder’s interest.

• Without proper planning, if your partner or fellow shareholder dies, you will be in business with that person’s spouse, children, or any other person who is a beneficiary of his/her estate.
• Your partner or fellow shareholder could also dictate who your new partner or fellow shareholder will be by selling or otherwise transferring his/her equity interest, if your shareholder or buy-sell agreement does not preclude such action.
• Before entering into a partnership or a multiple shareholder arrangement, you should ensure that all possible succession scenarios are properly addressed so that your rights are adequately protected.

Krass Monroe’s unique depth of experience and expertise in the areas of multi-unit development, corporate law, tax and wealth management, provide the background necessary to design an effective succession plan that is vital to business in today's economy. If you have any questions regarding these observations or any other succession planning issues, please contact John Berg or Scott Husaby at 952-885-5999.