COVID-19 Planning for Employers

COVID-19 Planning for Employers

I Love it When a Plan Comes Together: COVID-19 Planning for Employers

Most episodes of the 1980s hit show, The A-Team, involved the team cobbling together some super-weapon from a collection of spare parts that they would use to defeat the bad guys. After securing their victory, team leader, Col. John “Hannibal” Smith, would often say, “I love it when a plan comes together . . .”

As employers have been cobbling together their defenses of hand sanitizer, disinfecting wipes, and face masks, they need to also work on crafting a plan. In fact, Indiana Governor Eric Holcomb’s latest Executive Order says, “On or before May 11, 2020, all Hoosier employers shall develop a plan to implement measures and institute safeguards to ensure a safe environment for their employees, customers, clients, and members. The plan shall be provided to each employee or staff and posted publicly.” As you develop your company’s plan, here are some important considerations:

  • It doesn’t have to be lengthy. Written workplace policies serve many goals, but the most important one here is communication. Use this plan to send clear messages; don’t bog down your workforce with too many details.
  • It should be flexible. None of us have ever lived through a pandemic like this. Things have changed a lot in recent weeks and months and are likely to keep changing. Let your employees know that current workplace procedures are temporary and are likely to change.
  • It must take safety seriously. Read the relevant CDC guidance; study other reputable local, regional, and national resources to determine concrete steps your company can take to do its part in preventing the spread of COVID-19. Seek professional advice if you need it.
  • It must respect other relevant employment laws. All the existing rules against discrimination, harassment, and retaliation—along with laws requiring reasonable accommodations for disabilities and religious beliefs—continue in force. Congress recently passed new laws providing paid sick leave and family leave to most workers, and various other state or federal employment laws could be implicated by your company’s COVID-19 response. Keep these considerations in mind.

Having a plan is required in Indiana, but it is a good practice in other states, too. Tuesley Hall Konopa attorneys are available to assist businesses and individuals in Indiana or Michigan with a variety of legal needs. Visit our website at thklaw.com for a comprehensive list of our legal services.

Michael J. Hays, Business Counsel & Partner, Tuesley Hall Konopa, LLP

Author: Partner, Michael J. Hays, is an employment law and civil litigation attorney at Tuesley Hall Konopa, LLP. His practice areas include civil litigation, employment law, business counsel, real estate transactions, and contract review. Michael is licensed to practice in Indiana and Michigan.

You can contact Michael by calling 574.232.3538 or by email at mhays@thklaw.com

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.

Work in the Time of Coronavirus

Work in the Time of Coronavirus

If you’ve read Love in the Time of Cholera, you know that running a business in 2020 is nothing like that. Employers addressing this unprecedented pandemic have lots of questions. Below are some quick tips on sick leave, layoffs, medical evaluations, and other issues. As this crisis unfolds, Tuesley Hall Konopa will remain open to address your legal needs. Coming changes might affect our in-person contact, but our lawyers and other professionals will stay engaged to serve our clients. In the meantime, consider the following guidance, which is current as of March 16, 2020:

A. It’s okay to stick with your normal paid time off policies for now, but be ready for changes.

The House of Representatives passed the Families First Coronavirus Response Act on March 14th. If the Senate passes it, and the President signs it, then employees will have a guarantee of 14 sick days relating to COVID-19, easier access to FMLA leave, and other benefits. We are waiting to see the final law before offering more detailed guidance.

As of today, you may insist that employees away from work for Coronavirus reasons follow normal paid time off policies. We advise that you do not penalize employees under normal attendance policies whose absences are caused by the pandemic. We also recommend employers exercise some flexibility and understanding with required doctors’ notes.

B. If mass layoffs may be coming to your business, now is the time to start planning.

The federal WARN Act generally requires 60 days’ notice for “mass layoffs” by employers with 100 or more employees. Please seek legal advice because the counting of employees can be confusing. Employers are to provide a specific written notice to affected workers and to certain local government offices.

A “mass layoff” only falls under the Act if it will be for 6 months or more, but if there is a risk at least some employees will have their hours reduced by at least 50% for at least six months, then the most conservative advice would to be give WARN notices even if you hope and expect any layoffs will be shorter.

WARN is a complicated law with exceptions for “natural disasters” and “unforeseeable business circumstances” that might apply to COVID-19. Generally, these exceptions spare the employer liability for shortening the notice, but notice is still required. Given the unprecedented nature of this outbreak, Congress may intervene to modify the WARN Act. Even so, if the size of your workforce and the size of your layoff implicates WARN, you should consider giving as much WARN notice as possible—even if it’s only a few days.

C. Employers will have to be creative.

There is a “general duty” under OSHA for all employers to protect their employees from workplace hazards. You may rely on this to force employees to stay home from work if they have flu-like symptoms, have likely exposure to Coronavirus, or present other risks. You may also:

  • Consider new standards for work-from-home to mitigate risks;
  • Inform your employees of any exposure risk they may have faced at work, but without revealing confidential medical information about affected employees;
  • Consider temperature screenings before allowing employees to return to work but seek guidance as other “medical examinations” could implicate the Americans with Disabilities Act.

D. Be thinking about “force majeure.”

Using a Latin phrase, the law has long allowed a contracting party to avoid fulfilling a contract if unforeseeable circumstances make performance impractical or impossible. Historically, things like wars, natural disasters, and labor strikes have been considered force majeure events. Most legal scholars believe the COVID-19 outbreak will fit that standard. In fact, the NBA is already talking of invoking this rule to avoid paying players.  Depending on the terms of your agreements, your business may be able to rely on force majeure to avoid certain contracts. But your business partners might be able to do the same to you. This is another area where advance planning and careful guidance are in order.

E. Stay in touch.

The news media and your inbox are flooded with Coronavirus information. That won’t stop any time soon. As you try to run your business while staying abreast of public health needs, contact Tuesley Hall Konopa for legal guidance in this evolving situation.

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Michael J. Hays, Business Counsel & Partner, Tuesley Hall Konopa, LLP

Author: Michael J. Hays is a civil litigation attorney and Partner at Tuesley Hall Konopa, LLP. His practice areas include civil litigation, employment law, business counsel, and contract review. Michael is licensed to practice in Indiana and Michigan.

You can contact Michael by calling 574.232.3538 or by email mhays@thklaw.com

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation.
Arbitration vs. Litigation of Business Disputes?

Arbitration vs. Litigation of Business Disputes?

Many standard form business and especially employment, consumer and other contracts provide that some or all disputes between the parties can be resolved only by arbitration, as opposed to traditional litigation.

Recently, the business and legal press discussion of alternative dispute resolution options have focused on two somewhat divergent attacks against arbitration. First, state courts have attempted to expand consumer or employment-related arbitration claims to much broader class actions. A 9th Circuit Federal Court of Appeals’ decision to that effect was reversed by the U.S. Supreme Court (Lamps Plus v. Varela decided 4/24/19). Alternatively, more recently, on September 20, 2019, the Democratically controlled U.S. House of Representatives passed the Forced Arbitration Injustice Repeal Act (FAIR) which proposes to ban private pre-dispute arbitration agreements for employment, consumer, antitrust or civil rights’ claims. President Trump, however, has already indicated that, if in the unlikely event that the U.S. Senate passes the “FAIR” Act, he will veto it. September 21, 2019, Wall Street Journal editorial titled its criticism of the “FAIR” Act as the Lawyer Enrichment Act. Part of the Journal’s premise was that the plaintiff’s bar benefits much more than its class of claimants, who often actually receive little financial benefit as a result of such class action proceedings.

Even though the U.S. Supreme Court’s decision in Lamps Plus was by the narrowest 5 to 4 vote, it appears as though the alternative of arbitration remains viable.

In looking at the alternative of arbitration versus traditional litigation, a business manager or owner is often presented with what may be a standard form, or, where more dollars are at risk, a specially drafted contract, which includes a mandatory dispute resolution provision. What are the benefits and lists of agreeing to arbitration as a primary or sole means for resolving a business disagreement?

Arbitration proceedings are typically tied to a set of rules governing the entire proceeding, often in the form of those promulgated by the American Arbitration Association (the “AAA”), or those provided by what was formally known as the Judicial Arbitration and Mediation Services, Inc., and now identified by the acronym “JAMS”. The AAA has literally hundreds of qualified arbitrators, many of whom are current or former practicing attorneys or jurists. JAMS’ panel of arbitrators is heavily populated by retired state and federal judges. The AAA has a special set of rules for resolution of commercial disputes and, for example, construction disputes as well, while JAMS’ offerings include rules specifically geared to employment disputes.

Proponents of commercial (“BTB”) arbitration for business dispute resolution, including the AAA itself, promote arbitration as a more efficient, expeditious and less expensive alternative to traditional litigation. In addition, confidentiality of heavily protected intellectual property or other confidential business processes and procedures can be significantly enhanced through arbitration. Advocates of arbitration also cite arbitration’s ability to avoid the excesses of emotional jury awards as a benefit. On the other hand, business owners and managers generally view traditional litigation as a process burdened by the archaic procedural rules and long delays typically involved in traditional litigation filed in state or federal courts.

The advantages promoted by the advocates of arbitration are generally accurate but are variable depending upon the nature and complexity of the breadth of a particular business dispute and are somewhat dependent on the rules governing the proceeding.

Specially negotiated commercial agreements allow the parties to craft dispute resolution provisions to include rules detailing such things as the specific industry and technical training of the arbitrator and even the level of experience, of a single or panel of arbitrators. Such provisions can also mandate an initial step of non-binding Mediation. These preliminary proceedings provide the possibility of increasing the chances of preserving a long-standing and valuable business relationship. Negotiating provisions also can exclude certain types of disputes from the scope of the arbitration provision. For example, provisions may permit a party obtaining a temporary restraining order or preliminary injunction to maintain the status quo pending the ultimate resolution of the arbitration proceeding. Similarly, specially negotiated and drafted dispute resolution provisions can limit the scope and breadth of the arbitration proceeding, choose the governing rules for the matter, limit the scope and/or time of the discovery process, which often belabors traditional litigation, and also limit the types of remedies that the arbitrator can award. In addition, the arbitrator can be empowered to award attorney fees and expenses to the prevailing party. Finally, to avoid or at least limit the likelihood of any traditional litigation, placing limitations on and/or specifically defining what is arbitrable under the provision and further reduce costs and time.

In its recent editorial, the Wall Street Journal also cited a number of statistics from the U.S. Chamber of Commerce’s Institute for Legal Reform, including those showing that even employees are three times more likely to win in arbitration than in court, while arbitration is over 15% “quicker” than litigation, even though the average arbitrated dispute still required over 18 months to be resolved.

Business attorneys themselves should be cautious in drafting dispute resolution provisions in a specially negotiated agreement without consulting with an experienced commercial litigator, as well as an experienced mediator and/or arbitrator. Business interests can be overzealous in restricting the scope of the arbitration provision or in establishing unrealistic timelines for the proceeding.

Further, not every business dispute is best resolved by arbitration. Here, avoiding what is often referred to as “Bet the Company” issues, such as those involving critical intellectual property raising to the level of being the “lifeblood” of a business should likely be avoided.

Nevertheless, arbitration provides business owners and managers with what may often be a more expeditious, less costly, and confidential means of resolving “BTB” disputes. In negotiating alternative dispute resolution provisions, business owners and managers should have their general business legal counsel consult with his or her litigation colleagues to assure the best results.

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation.

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Author: Partner, Thomas J. Hall, is a business and succession planning attorney at Tuesley Hall Konopa, LLP where he has counseled Michiana business owners for over 30 years in the day-to-day operations of running a business. Tom is also a certified mediator and is licensed to practice in Indiana and Michigan.

You can contact Tom Hall by calling 574.232.3538 or email thall@thklaw.com.

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.

Considerations for Buying and Selling Real Estate When Tenants are Involved

Considerations for Buying and Selling Real Estate When Tenants are Involved

Considerations for Buying and Selling Real Estate When Tenants are Involved – The Importance of the Tenant Estoppel Certificate.

Real estate transactions are strange and often lead to unforeseen complications. Real estate transactions become further complicated when they involve tenant-occupied properties, be it commercial spaces, apartment complexes, or single-family homes. The purchase of a rental property comes with questions you don’t get when buying an unoccupied building. As a seller, for example, you will need to consider what kind of notice must be provided to residents before the sale? As a buyer, you must take into account the cost of security deposits you will have to pay to tenants down the road when determining the final price to be paid at closing. And both parties will need to agree who is responsible for damages caused by tenants before the sale closes. The purchase and sale of tenant-occupied real estate can also further complicate the due diligence process. For example, it is extremely important to obtain and review all lease agreements potentially affecting the property. Another essential part of completing due diligence comes in the form of tenant estoppel certificates.

Tenant estoppel certificates are signed statements that certify facts concerning the tenant’s lease and the status of its occupancy. According to Black’s Law Dictionary, an estoppel statement is “a signed statement by a party certifying for another’s benefit that certain facts are correct, as that a lease exists, that there are no defaults (by the landlord or the tenant), and that rent is paid to a certain date. A party’s delivery of this statement estops that party from later claiming a different state of facts.” Black’s Law Dictionary, 572 (7th Ed., 1999). In short, these certificates are used to inform potential purchasers of the rights and obligations of existing tenants.

An estoppel certificate will usually memorialize the date the lease began, the duration of the lease, monthly rental amount, security deposit, renewal options, whether any modifications to the lease have been made, etc. It will also certify whether rent is in arrears or up to date, whether any subleases are in place, whether there are any oral agreements with the landlord or promises made by the landlord, etc. Additionally, estoppel certificates give tenants the option to explain any claims they might have against the landlord. In some circumstances, a tenant estoppel certificate can also require that the tenant certify whether it has used any hazardous substances on the premises or whether it has violated any environmental laws. By signing this statement, the tenant is prohibited from taking a contrary position in the future. This allows prospective purchasers to fully assess the economic benefits they will gain by purchasing a tenant-occupied property as well as potential liabilities they may face after assuming ownership.

Tenants are not required to sign an estoppel certificate unless mandated to do so by the terms of their lease. Luckily, most commercial and residential form leases contain clauses requiring tenants to sign estoppel certificates when requested by the landlord. If a tenant fails to sign an estoppel certificate as requested, it may be considered an affirmation of the facts contained therein or it may be used as a basis for evicting the tenant for breach of the lease. It is therefore important to thoroughly review all leases affecting tenant-occupied property as part of your due diligence before closing.

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Author: Elizabeth (Libby) A. Klesmith is a civil litigation and business attorney at Tuesley Hall Konopa, LLP. Her practice areas include real estate, insurance defense, and trademark law. She is licensed to practice in Indiana and Michigan

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.

Importance of Depositions in Business Litigation

Importance of Depositions in Business Litigation

Most organizations find themselves in litigation at some point in the life of the business. Maybe a disgruntled former employee brought a claim, or you had to go after a customer who didn’t pay—or a supplier who didn’t deliver. Maybe a contract went wrong, or a real estate deal turned sideways. Maybe you needed to enforce a non-compete or you hired someone under a non-compete and got drug into that dispute. Whatever the reason, most businesses will find their names in court documents on occasion. When that happens, you hire attorneys to advise you and to represent your interests in the courtroom. Every case is different, and every client has unique motivations, but most of the time, the instructions to the lawyer are something along the lines of: “Get this thing over quickly, cheaply, favorably, and with as little disruption to the business as possible.”

The work of a business litigator is to partner with the client in achieving those aims as the dispute travels through its various stations along the journey to resolution. Often, an important stop on the way involves depositions. Readers of this blog probably know what a deposition is, either through personal experience or from memories of Bill Clinton. But for the uninitiated or those who may have forgotten, a deposition is a when an attorney questions a witness under oath as part of the pre-trial fact-gathering process. It generally takes place in an attorney’s conference room and often lasts several hours. I tell clients a rough average is 4 hours, but I’ve sat through depositions twice that long, and I’ve also seen quick depositions that take less than an hour. I’ve never met a witness who enjoys being deposed. Even expert witnesses who do it regularly dislike depositions. But they are a critical part of the litigation process. Understanding a little more about their purpose and function may help prepare your business for its next litigated dispute.

First, if you or someone else in your organization is going to be deposed, it will be costly. The witness needs to prepare well before the deposition itself. The day of the deposition is likely to be long. And you will be paying an attorney to advise, assist, and advocate for you throughout the process. You will also be losing productivity while the company’s witness tends to these matters instead of running the business. Whole books have been written about the art of preparing for a deposition. I won’t repeat those strategies here, but you should lean on your attorney for guidance in this important area.

Second, depositions may be unavoidable. Parties to a lawsuit generally have a right to investigate facts relevant to the lawsuit, including questioning knowledgeable witnesses. You would not want anyone limiting your rights in that regard, and it is generally hard to limit the other party’s rights, too. But that’s not to say your opponent has an unlimited ability to question anyone it likes. The law says that any discovery process must be “proportional to the needs of the case.” And a strong body of law protects “apex employees,” such as corporate executives, from being deposed when they were not personally involved in the matters covered by the lawsuit. A good business litigator may also be able to negotiate other ways of limiting or delaying the burden of depositions.

Third, depositions have an outsized position in the mind of many attorneys. A lot of statistics are available on the so-called “vanishing” civil trial, but in general, an average civil case stands around a 95% (or greater) chance of being resolved without a trial. The reasons for this have been debated elsewhere, but one consequence is that many lawyers treat the opponent’s deposition as the showcase event in a lawsuit. If you are paying a lawyer to take a deposition on your behalf, you should instruct him or her to guard against this selfish tendency. And if someone in your organization is going to be questioned by an opposing lawyer, you should be prepared that this force may be at work.

Finally, there is no denying that depositions are powerful. When a witness is “locked in” to a certain line of testimony, that narrative will control the rest of the lawsuit. Likewise, when a party is forced to explain his or her position under the stress of adverse questioning, everyone gets a good sense of the strengths and weaknesses of that position. Deposing key witnesses is almost always essential in the rare cases that go to trial, and it is often necessary to facilitate a settlement or a key pre-trial motion in other cases.

Considering all this, nearly everything about depositions runs counter to the goals most clients pursue of resolving their litigation quickly, inexpensively, and without disrupting the business. But clients also want to resolve the dispute favorably. Finding the right balance of when and how depositions fit into these objectives is something your business litigator should be discussing with you. Make sure you are comfortable with the advice you receive on that score and that your organization is read when depositions need to be taken or defended.

Michael J. Hays, Business Counsel & Partner, Tuesley Hall Konopa, LLP

Author: Michael J. Hays is a civil litigation attorney and Partner at Tuesley Hall Konopa, LLP. His practice areas include civil litigation, employment law, business counsel, and contract review. Michael is licensed to practice in Indiana and Michigan.

You can contact Michael by calling 574.232.3538 or by email mhays@thklaw.com

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.

Succession Planning 101

Succession Planning 101

If You Plan to Succeed, You Need a Succession Plan

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So you’ve survived the hard part. You’ve got your business off the ground and past the start-up stage, and you have an established, successful business. Or you have completed your purchase of an established, successful business and are past the initial transition from the previous owner. You’ve realized your dream of owning your own business. It’s all smooth sailing from here, right? Wrong.

If you’ve gotten this far, most likely you had a plan for your business, and you have been executing that plan. As the saying goes, “if you fail to plan, you are planning to fail.” But typical business planning focused on growing revenue, controlling expenses, or marketing your products or services is only part of planning for long-term success. Just as important, but often neglected (or overlooked entirely) by business owners, is business succession planning (also sometimes called exit planning).

For many businesses, and especially for businesses that are owned and operated by the founder or founders of the business, much of the success of the business is directly attributable to the business owner. It may be your entrepreneurial spirit, or the force of your personality, or your technical expertise, or some combination of all of those. But like it or not you aren’t going to be around forever. And even if you could figure out a way to achieve immortality, presumably you would like to be able to exit the business at some point and more fully enjoy the fruits of your labor. And for many business owners, their business has been a labor of love, and they want their business (like their children) to be successful long after they are gone.

Developing, and then implementing, a good succession plan is an answer to the question of how you can maintain and realize the value of your business, ensure its long-term success, and exit the business on your terms and on your timeline.

How do you develop and implement a good succession plan? Here are ten steps that provide an overview of the process:

(1) Assemble Your Professional Team (Financial Planning, Tax, Legal, and Insurance)

(2) Define Your Desired Personal Financial Objectives and Exit Timeline

(3) Determine the Value of Your Business

(4) Identify Your Desired Successor (Family, Key Employee, Third Party)

(5) Assess Possible Succession Plan Structures Based on 2 through 4

(6) Evaluate the Financial Fit of the Possible Structures With Your Desired Personal Financial Objectives and Exit Timeline

(7) Evaluate the Interpersonal and Psychological Fit of the Desired Successor With You and the Business

(8) If You Have a Good Fit, Further Develop the Plan, Including the Timeline and Methods for Building and Protecting the Value of the Business and for Transferring the Business to the Successor

(9) If You Do Not Have a Good Fit, Go Back to Step 2 (or Step 4) and Start Over

(10) Once Your Plan is Developed, Implement It (But Be Prepared to Be Flexible and to Revisit the Plan Over Time As Necessary)

Below we will cover these ten steps in greater detail.

Steps 1 through 3 – Start with the Basics

Step 1: Assemble Your Professional Team (Financial Planning, Tax, Legal, and Insurance)

Developing and implementing a good succession plan is an interdisciplinary effort. You should involve a professional team that includes you and your financial planner, accountant, business attorney, estate planning attorney, and insurance agent. If you already have these relationships in place, you should meet with your team to discuss your desire to develop and implement a succession plan. If you do not have any of these relationships in place, now is the time to establish them. Relationship referrals tend to be the best way to make these connections, so a good approach is to ask the existing team members for referrals to help you fill the missing roles. If you only have one of these relationships in place, start by meeting with that team member and build your team from there. And be sure to have a designated quarterback (whether that is you or one of the other team members). It is important to have one person charged with keeping the process moving forward.

Step 2: Define Your Desired Personal Financial Objectives and Exit Timeline

Before you can develop an effective plan, you need to first define your desired outcomes for the plan. If you don’t know where you want to end up, then there is very little chance of you getting there. This means you have to take time to do some soul-searching about your personal objectives, both financial and otherwise. This includes your feelings about when you want to exit your business and what you want to do once you have. And this requires that you give some serious thought to what your financial needs and wants will realistically look like if your other desired outcomes are achieved. For example, if you are a 45-year-old business owner, and you want to retire when you are 65 and play golf at your local course once a week, achieving those objectives is likely going to be much easier than if you want to retire at 50 and travel the world playing every Jack Nicklaus designed golf course. Your identification of your desired outcomes for the plan, therefore, needs to include a reasonable level of needs and wants financial analysis and projections based on your income-generating assets (including, of course, your business).

Step 3: Determine the Value of Your Business

Once you have your professional team in place and have defined your desired outcomes for your succession plan, the next step is for you to determine at least the approximate value of your business. This may mean an informal valuation discussion with your accountant and financial planner, or this may mean a formal business valuation by a Certified Valuation Analyst or similarly accredited professional. And it is possible you may start with an informal valuation and then later in the planning process have a formal valuation prepared when the time is right. Either way, this step is critical, as it allows you early on in the process to see whether your desired financial outcomes appear likely to match up with your financial reality. This, in turn, helps you avoid incurring unnecessary expense and frustration heading down a succession planning path that is not realistic based on your financial needs or wants and on the estimated value of your business and the income-generating value of your other assets.

After completing steps one through three, you will have assembled your professional team, defined your personal financial objectives and timeline, and determined at least an approximate value for your business. Now, it is time to turn your attention to developing and evaluating possible succession plan structures.

Steps 4 through 7 – Develop the Structure

Step 4: Identify Your Desired Successor (Family, Key Employee, Third Party)

To have a succession plan, you need a successor. Typical potential successors would be one or more family members, one or more key employees, or an unrelated third party. Which of these is right for you depends on your circumstances. Do you have family members active in the business? Do you believe those family members have “what it takes” to run the business? Do you have key employees you believe have “what it takes” to run the business? Would your business be appealing to a third party purchaser? What priority do you place on the legacy of your business and whether it continues to be run after you are gone by people who you feel are of like mind to you? You should give these questions serious thought and determine who your desired successors would be in your perfect world.

Step 5: Assess Possible Succession Plan Structures Based on 2 through 4

With steps one through four completed, you should work with your team of advisors to develop and evaluate possible plan structures that might fit with the value of the business and your desired successors. These will include transaction type (transfer of business assets or business stock), purchase price (how determined and whether at a discount or a premium), payment terms (cash at closing or down payment with installment note – and if an installment note, over what term and at what interest rate), handling of management transition from you to successors, and handling of any business real estate (included in business succession transaction or excluded and retained by you).

Step 6: Evaluate the Financial Fit of the Possible Structures With Your Desired Personal Financial Objectives and Exit Timeline

Once you and your team have developed and evaluated possible structures that may work for the value of the business and for your desired successors, you need to evaluate the financial fit of those plan structures with your desired personal financial objectives and exit timeline. If your preference is to sell your business to your children, or perhaps key employee(s), will your children or key employee(s) be able or willing to pay you a sufficient amount at closing or within a sufficiently short period of time after closing to meet your financial objectives and exit timeline? If you would prefer to sell to a third party, will current market conditions support a third-party valuation of your business that matches up with your financial objectives?

Step 7: Evaluate the Interpersonal and Psychological Fit of the Desired Successor With You and the Business

Finally, you need to evaluate the interpersonal and psychological fit of the desired successor with you and your business. This can be a difficult task and more art than science. While the financial fit relies heavily on mathematical calculations and forecasts, this fit is more subjective and difficult to assess. But, it is critically important to a successful plan and as the owner, you must be honest with yourself, perhaps even brutally so, in completing this step. If you don’t honestly believe that your son, or daughter, or key employee, or third-party purchaser is up to the task of owning and successfully running and growing your business, and if their failure to do so would undermine the financial viability of your succession plan, then that may not be the right plan for you. Or, if you believe the successor can succeed but is likely to turn the business into something you will not feel good about for your legacy, then that may not be the right plan for you.

After completing steps one through seven, you will have assembled your professional team, defined your personal financial objectives and timeline, determined at least an approximate value for your business, identified your desired successor, and developed and evaluated possible succession plan structures.

After all that, it is finally time for you to begin to implement your succession plan.

Steps 8 through 10 – Implement But Be Flexible

Step 8: If You Have a Good Fit, Further Develop the Plan, Including the Timeline and Methods for Building and Protecting the Value of the Business and for Transferring the Business to the Successor

If your personal financial objectives and desired exit timeline, approximate value of your business, and your desired successor all match up well, then it is time for you to further develop your plan. This should include a targeted timeline for beginning to implement your plan and for completion of your plan. It should also include the development of methods for building and protecting the value of your business and for transferring the business to a successor.

Examples of further plan development here might include:

(1) determining whether/when to begin to transfer minority ownership interests to designated family member successors or key employee successors;

(2) ensuring that critical business functions can be handled by one or more key employees and that the business’ success and survival are not overly dependent on your involvement;

(3) protecting the value of the business through confidentiality, non-competition, or stay bonus agreements with key employees; or

(4) developing a timeline for a sale to an outside third party and possibly identifying a business broker or investment banking firm to engage for assistance with marketing the business for sale.

Step 9: If You Do Not Have a Good Fit, Go Back to Step 2 (or Step 4) and Start Over

Maybe your plan has always been to have one or more of your kids take over the business, but after going through Steps 1 through 7 you now realize that none of your kids really want to take over the family business. Or maybe they do want to, but you now realize they don’t really have what it takes to manage the business successfully.

Or perhaps you were hoping to sell the business to a third party for $5 million, but your professional valuation report is telling you the business is only worth $2.5 million, and that amount will not meet your personal financial objectives.

Whatever the reason, if the path you thought you were headed down is clearly not going to work, it is important that you not waste valuable time pursuing that path any further. Instead, it is time to go back to Step 2 (or Step 4) and start over because you will need to change one or more aspects of your plan. You may need to do one or more of the following: adjust your personal financial objectives; adjust your timeline; change your desired successor; or find a way to increase the value of your business.

Step 10: Once Your Plan is Developed, Implement It (But Be Prepared to Be Flexible and to Revisit the Plan Over Time As Necessary)

Life and business often do not go according to plan. It may be a downturn in the economy, or a change in your industry, or a health issue for you or your successor, but the odds are good that your succession plan will encounter unexpected obstacles.

So, as your plan unfolds you must continue to review and revisit the plan to be sure it continues to meet your objectives, and you must be prepared to be flexible and adapt the plan to changing circumstances.

Eric W. Seigel, Business Counsel, Partner, Tuesley Hall Konopa, LLP

Author: Eric W. Seigel is a business lawyer and partner at Tuesley Hall Konopa, LLP. He helps his business clients with day-to-day business law needs, contract review and negotiation, business acquisitions and sales, and exit and succession planning. He is licensed to practice in Indiana and Michigan.

You can contact Eric by calling 574.232.35378 or by email eseigel@thklaw.com.

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.