In the final season of “Succession,” Logan Roy’s death creates a power vacuum within Waystar Royco, the fictional media conglomerate that Logan founded and acted as CEO of until his death. This raises a difficult question that many, if not all, business owners face: “When I die, what happens to my ownership in the company?”
The equity in the business is personal property that passes according to the owner’s estate plan. However, passing the right to own and control a business is substantially different than passing on a memento. Your heirs may not be equipped to run the business. Passing the business on to the wrong person could cause a once-profitable business to become a major liability for the heirs. If the business has multiple owners, your partners likely do not want to be partners with your children or spouse. So, what does a business owner do with his interests?
To maximize value, the owner must identify a buyer for the equity. When a business has multiple owners, the succession plan is generally simpler as the remaining partners can agree to buy out that equity of the deceased owner. This can be done through a properly drafted Shareholder Agreement or Operating Agreement.
If the business is solely owned, then the owner should develop a transition plan that identifies who will succeed to the business and how the business owner’s heir will receive value for the business’ equity. The owner could transfer a non-controlling equity interest to the heirs, which would provide a continuous revenue stream while ensuring that control of business stays with the chosen successor. It might also make sense for the sole business owner to go one step further and sell the business during his or her lifetime.
Owners of businesses – large and small – can learn a cautionary tale from the untimely demise of Logan Roy, who may be rolling over in his grave as his son-in-law now controls the corporation he founded.
