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Succession Planning and Exit Strategies

Succession Planning in California

Succession planning may include transferring a business to future generations, selling a business to key employees, or accepting an offer to buy a business from a competitor, all of which require careful planning to ensure the future success of the business, to minimize transfer taxes, and to get the highest price.

Many business owners put off planning for the succession of ownership and control of their business until it is too late; however, without any plan in place, the unexpected death or disability of a business owner can severely cripple a business and diminish its value. Additionally, advance planning affirms the continuity of the business. If something happens to a business owner, it is important that the business has a plan for management and control in order to avoid any sort of internal power struggles. Moreover, advance succession planning is often necessary to alleviate concerns of customers or lenders entering into a long-term contract.

If a business owner’s goal is to transfer a business to the next generation, it may be best to implement a systematic plan of gifts and stock sales over a period of several years in order to minimize the overall transfer tax burden, and make sure that the successors are well-prepared to manage the business when the need arises.

Sale of Business

Sometimes it is in a business owner’s best interest to sell the business. There are various ways that a business sale can be structured, but most forms generally involve either an asset sale, a stock sale, or some form of tax-free reorganization such as a qualifying merger. In a stock sale, the business owner sells a corporation’s shares of stock (or perhaps a partnership or LLC interest) to a buyer. In an asset sale, rather than selling the company’s stock, the business sells the assets of the company to a buyer. In a tax-free reorganization, the original business owner generally maintains some form of ownership.

There are pros and cons to various types of business sales. From the business owner’s perspective, a stock sale is a very simple way to transfer ownership of the business. Additionally, income from the sale can qualify as a long-term capital gain, resulting in preferential tax treatment for the seller. Still, some buyers may prefer an asset sale in order to prevent taking on an existing corporation’s “baggage” (i.e., creditors, potential lawsuits, etc.). Additionally, an asset sale may allow a buyer to depreciate the purchased assets for income tax purposes, whereas any monies used in a stock sale would simply become part of the buyer’s basis in a corporation, and not currently deductible. A tax-free reorganization may be a good strategy for all parties involved, if it is desirable for the seller to maintain some form of ownership.

Due to the myriad factors to consider when selling a business, careful consideration must be given to the most appropriate structure in order to obtain the greatest benefit from the sale.


If a business has run its course, a simple option may be to dissolve the business. Dissolving a business typically involves liquidating the assets, paying any outstanding creditors, and filing both final tax returns and formal dissolution paperwork with the secretary of state. In certain circumstances where a business entity is suspended, it may be possible to walk away from the business without going through the formal process of dissolution; nevertheless, great care should be taken to ensure that such a decision will not result in personal liability of the business owners in the future.


Sometimes bankruptcy is an advisable exit strategy. When this happens, a business owner hands over the keys to a bankruptcy trustee in order to walk away from the business. The bankruptcy trustee then has the responsibility of liquidating a business’s assets and sending payments to creditors accordingly. It is important to speak with an attorney experienced in both business law and bankruptcy law prior to making this decision in order to fully understand all of the benefits and consequences of this approach.

How an Experienced Roseville, California Business Lawyer Can Help

NewPoint Law Group, LLP, has experience in assisting business owners develop and implement all types of succession planning and exit strategies. Please contact us if you need assistance developing or implementing an exit strategy suitable to your needs. To schedule a free consultation, call 800-358-0305 or message us online.

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