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  • The vast majority of the personal wealth of most business owners is the value of their business.

  • Getting access to that trapped wealth in the owner’s business is a principal goal of a successful access plan.

  • Business owners without an exit plan may never realize the potential value of their business.

The closely held business of many owners represents not just a source of income ,but also the largest portion of their personal wealth. Yet, a common issue is that much of this wealth remains tied up in the business, making it difficult to access without a well-thought-out exit strategy. Without proper planning, owners may find themselves struggling to realize the full value of their company when it’s time to sell, transition, or retire.

I am a lawyer, a certified valuation analyst, and a certified exit and succession planner.  I have worked with the owners of closely held businesses throughout my career.

Contact me if you have questions about valuing your business, developing an exit plan, or implementing the legal bulletproofing necessary to protect your investment.

I see it in my law practice. Owners reach retirement and discover that they own a job, not a business. In many cases, there is no choice but to liquidate or simply close.

Without an Exit Plan, Personal Wealth Often Remains Trapped

The statistics revealed through surveys of the Exit Planning Institute suggest that for many owners without an exit strategy, that wealth may stay trapped there forever.

  • 70-80% of Owners’ Wealth is Tied to the Business
  • 70% of Businesses Put on the Market Don’t Sell

This is where the Exit Planning Institute’s (EPI) guiding principles of exit planning come into play. The EPI’s approach focuses on maximizing the value of a business while aligning it with the owner’s personal financial goals. Working with a Certified Exit Planning Advisor (CEPA) can help business owners navigate the complexities of exiting, allowing them to unlock the personal wealth trapped in their business. Continue reading

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  • Business owners that fail to plan for their lives after exiting their business often report ‘seller’s remorse’ and dissatisfaction with their lives.

  • Understanding and planning for the personal after exiting a business focuses on two-part personal question: who we are outside of our business and what are our personal goals.

  • Formal written plans for life after exiting a business are a critical aspect of exit planning.

Business owners thinking about exiting their companies tend to focus on financial and operational considerations. However, an often-overlooked, yet crucial component is the personal leg of the exit planning stool, a framework popularized by the Exit Planning Institute (EPI). Effective exit planning, as outlined by the EPI, involves balancing three critical legs of an exit planning stool: business, personal, and financial. This more-holistic approach ensures that all aspects of the owner’s life are considered to achieve a successful transition.

The personal leg, which encompasses the owner’s personal goals, well-being, and plans for life after the business, is frequently neglected in favor of more tangible financial or business concerns. However, the EPI’s 2019 and 2023 surveys show that business owners who fail to plan personally for life after the transition are at risk of dissatisfaction post-exit, potentially leading to “seller’s remorse.” Continue reading

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  • Using keyman insurance to fund equity redemptions is likely to increase estate tax liability.

  • US Supreme Court holds that keyman insurance proceeds of company-owned policies are an asset of the company, regardless of a contractual obligation to fund an equity redemption.

  • Cross-purchase agreements funded by insurance should avoid these estate tax liability issues.

Effective succession and exit plans commonly use insurance as a funding vehicle to protect the owners from the economic effects of the death or disability of one of the principals. If an owner dies or becomes disabled, the insurance kicks in to fund the cost of a buy-sell agreement, ensuring a smooth transition of ownership.

The reason: When business owners die, the transition of their shares will disrupt the company and create financial burdens for the surviving shareholders or the company itself unless the owners have a plan in place.

The Importance of Keyman Insurance to Closely Held Businesses

To address this need, closely held businesses often use keyman life insurance in conjunction with buy-sell agreements. These agreements ensure that ownership transitions smoothly, and the business continues operating without major financial strain. (Insurance and other financial vehicles are also effective means of funding a transition out of the business for retirement.)

I am a lawyer, a certified valuation analyst, and a certified exit and succession planner.  I have worked with the owners of closely held businesses throughout my career.

Contact me if you have questions about valuing your business, developing an exit plan, or implementing the legal bulletproofing necessary to protect your investment.

However, the structure and tax implications of the insurance-funded plan can differ depending on whether it is used in a redemption agreement or a cross-purchase agreement. After a recent United States Supreme Court decision imposing a million-dollar deficiency on an estate, closely held business owners need to review any insurance-funded plans to ensure that they are not unwittingly taking on an estate tax burden.

The Supreme Court Upsets the Status Quo

The Supreme Court’s landmark decision in Connelly v. United States is unwelcome news for those closely held businesses that have purchased keyman policies to fund the company’s purchase, or redemption, of a deceased shareholder’s interest. Continue reading

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  • Valuing a business on an ongoing basis is intended to avoid valuation disputes in litigation and provide fairness and predictability.

  • Courts enforce contractual language that establish the the value of a closely held business based on valuation reports conducted by the owners for non-litigation purposes. 

  • Courts are likely to view valuation reports conducted for the purpose of litigation with suspicion when they avoid the impact of the parties’  prior agreement

Courts commonly reject a valuation report of one litigant in favor of another. Rarely, however, will a court reject the valuation reports of both sides. A trial judge in Delaware did just that, however, rejecting the valuation reports of both sides in a recent high-profile case in favor of the company’s periodic valuation report used for internal purposes.

In Catalyst Advisors Investors Global Inc. v. Catalyst Advisors, L.P., the central issue was the valuation of a limited partnership that, according to the terms of its partnership agreement, periodically calculated its value. Both sides submitted valuation reports, but the judge held that it was the terms of the parties agreements that ultimately determined the value of the enterprise based on a report “on file” when the dispute began.

Partners Dissociate from Boutique Recruiting Firm

The dispute arose after two partners, Catalyst Advisors Investors Global Inc. (CAIG) and Christos Richards, dissociated from the limited partnership Catalyst Advisors, L.P. The partnership operated as a boutique recruiting firm specializing in senior executive placements within the biopharmaceutical and medical technology sectors. The parties had a contractual right to leave the firm, and the company had the right to buy out their interest.

Continue reading

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  • The benefits of exit planning and succession planning are more than improving the prospects for a future sale at a good price.

  • Closely held business owners that implement the Value Acceleration Methodology can expect to improve profits now and to free up more of their own time.

Succession and exit planning are critical steps that enable the owners of closely held business to maintain and preserve the financial and social legacy of the enterprise they built. Whether the goal is to retire, to move on to another venture, or simply reduce the need for day-to-day involvement in running the operation, exit planning strategies are key.

Business-calculator-showing-profit-1323150-880x1024Perhaps even more important, exit planning is good business. Thomas Deans, writing in Every Family’s Business, cautions that every business should be ready for sale every day and, if the price is right, the owners should consider a sale.

Exit Planning is Good Business

The point is this: If a business isn’t ready for a sale, then the owners are leaving money on the table. Not just as in someday, but as in today. The hard fact is that most business owners have a disproportionate amount of their personal wealth tied up in a business that statistically they are unlikely to be able to sell.

Many businesses simply close their doors at the end of their founder’s work life, an unnecessary and avoidable result. Continue reading

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  • When one partner fails to respond to a notice of breach from the other partner, the relationship may be so damaged that dissolution is required.

  • Courts may apply the ‘not reasonably practicable’ standard in determining whether a business can continue in its present form.

  • The ‘not reasonably practicable standard’ is incorporated in the partnership statutes of most states.

An appellate court orders the dissolution of a general partnership after taking up the question of what exactly the statutory standard of “not reasonably practicable” means for the second time in a reported opinion.

The issue of what it means for particular conduct or circumstances to make it “not reasonably practicable” isOcean_Resort_Casino_-_Atlantic_City_01 often a critical issue in business divorce cases. We see it in both in judicial dissolution cases and in those states that permit judicial expulsion (i.e., dissociation) of owners.

Yet, the case law excamining the contours of the reasonably practicable is sparse, relatively speaking, despite the fact that the standard is applied in the limited liability company and partnership laws of most states.

AC Ocean Walk, LLC v. Blue Ocean Waters, LLC, the Appellate Division affirmed the judicial dissociation of Blue Ocean Waters, LLC from its partnership with AC Ocean Walk, LLC, and the subsequent dissolution of the partnership.

The court affirmed the lower court’s decision that Blue Ocean Waters’ failure to respond to a notice of breach constituted grounds for judicial dissociation under the Revised Uniform Partnership Act (RUPA) as adopted in New Jersey. Continue reading

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  • Exit planning describes the process of preparing a closely held business for the exit of its owners at its maximum value. It is the preparation and implementation of a plan that maximizes the current and future value of the business. 

  • Exit planners help owners understand the true value of their business today and what its potential value will be at the time of sale.

  • Most business owners seeking to sell their business will not find a buyer.  Exit planning vastly improves the marketability of the business and captures the most value for the owners. 

Succession and exit planning assure that the closely held business owner can maintain and preserve the financial and social legacy of their company, whether the goal is to retire, move to another venture, or simply reduce the need for day-to-day involvement in running the operation.

Studies indicate that 75 percent of private business owners would like to exit their business within the next 10 years.   2023 National State of Owner Readiness Report.  Closely held businesses are typically family-owned or controlled and most of the owners of those businesses favor passing the business to the next generation.  An effective exit plan will usually require three to five years to plan and implement.

Exit Planning Using Proven Strategies and an Extended Network of Professionals

Exit Planning Advisors

The Exit Planning Institute (EPI) has developed a comprehensive, multidiscipliary framework for developing a robust exit strategy, focusing on maximizing value, ensuring business continuity, and preparing for the future. EPI’s network of Certified Exit Planning Advisors (CEPAs) includes lawyers, wealth consultants, insurance advisors, merger and acquisition firms, family business consultants, accountants, and management firms.

CEPA_Transparent-Background-1-300x84A CEPA has access to this network of professionals, in and out of EPI’s network of advisors, and a thorough understanding of a proven strategy for business value enhancement that can increase the value of some businesses by 2–8 times when implemented.

Exit plans provide the framework that enables owners to step back from their day-to-day responsibility for their closely held enterprise.  This process of transferring the day-to-day oversight to others not only enables a seamless transition that safeguards the owner’s legacy and financial security, but it also gives the owner a level of persona freedom that many have never experienced. Continue reading

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  • Arbitration agreements survive the termination of an underlying contract, unless the parties specifically terminate the arbitrate provision.

  • In disputes involving closely held businesses, the arbitration agreement may be invoked even if the business is no longer in existence.

  • Unless there is a specific agreement on the question of ‘arbitrability’ of a dispute, it is an issue for a court to decide, not an arbitrator. 

We are often asked to prepare an amended and restated operating agreement or contract.  Or, more often in my case, we are representing a party in a dispute between two parties over a second or third version of an agreement.

No one says a word about arbitration.  Do we need to go back and determine whether any of the old agreements had an

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arbitration provision?  Is it enough that the second contract contains a standard integration clause that merges all prior negotiations and agreements into the final document? Probably not.

Survival of Arbitration Agreements in LLC Operating Agreements

Arbitration agreements do not just go away.  They survive the termination of an agreement and may even survive when that agreement was terminated because the parties negotiated a new or different deal.  If the parties want the agreement to arbitrate to end, they had better agree and put that decision in clear and unequivocal writing. Continue reading

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  • The application of a control premium more than doubled the claimed value of a business purchased its employees through and ESOP

  • An investment banking firm involved in the transaction is subject to claims that it was biased because the fee it earned was contingent on the purchase price.

  • The valuation firm that conducted the annual valuation required by federal regulations faces claims that it was not independent.  

A valuation that applied a control premium to shares acquired by an Employee Stock Ownership Plan (ESOP) would have inflated the value of the now-bankrupt company by as much as 61 percent, according to the plaintiffs in an action against the trustees of the ESOP, its investment bank and the firms that valued the business.

In a case heard by the Seventh Circuit Court of Appeals, the plaintiff’s claims of breach of fiduciary duty and engaging in prohibited transactions under the federal Employee Retirement Income Security Act (ERISA) were upheld even though the defendants wanted to dismiss the complaint. This was because the plaintiff sufficiently alleged wrongdoing in the valuation of the business.

ESOP Owning Bankrupt Company Sues Over Value Reports

The Seventh Circuit Court of Appeals in Appvion Inc. Retirement Savings and Employee Ownership Plan v. Butha held that the plaintiff’s claims for ERISA violations related to the valuation of theA valuation that applied a control premium to shares acquired by an Employee Stock Ownership Plan (ESOP) would have inflated the value of the now-bankrupt company by as much as 61 percent, according to the plaintiffs in an action against the trustees of the ESOP, its investment bank and the firms that valued the business. business after 2012 would proceed.

The gist of the plaintiff’s claims in the lawsuit is that employees approved the acquisition of the stock of the company based on the flawed valuation presented by an investment banking firm that received a contingent success fee of more than $8 million and that the annual valuations of the company were inaccurate and misleading.

Continue reading

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  • An arbitration clause in a is unlikely to be enforceable against a beneficiary unless there was to consent to arbitrate; it is unlikely to be inferred from the will alone.

  • An arbitration clause imposed as a condition of accepting the benefit of a trust is more likely to be enforced once the beneficiary has accepted the benefit of the trust.

  • A demand for a formal accounting is not considered a challenge to a will or testamentary trust.

Can a will impose an agreement to arbitrate on the beneficiaries of the estate?  And if the will can make that condition, will it apply to a demand that the executor provide an accounting of what is in the estate?  That was the question presented in a dispute involving the beneficiary of a “substantial” estate left by real estate developer Samuel Hekemian, who died in 2018.

4890273230_276075c0c4_c-1Hekemian’s will established several trusts and contained an arbitration clause in the event of disputes. After one of his son’s sued to compel an accounting, the co-executors, son Peter Hekemian and attorney Edward Imperatore, sought to compel arbitration under a provision in his Last Will and Testament (referred to by the court as the LWT).  The effort failed.  The Appellate Division in an unreported decisions, Matter of Estate of Hekemian affirmed, holding that there was no binding agreement to arbitrate and that it was inconsistent with the specific and detailed authority given by statute to courts to oversee the probate process. Continue reading

Contact Information
Jay R. McDaniel, Esq.
(973) 602-3915
Weiner Law Group LLP
New Jersey Office
629 Parsippany Road
Parsippany, NJ 07054
New York City Office
90 Broad Street
New York, NY 10004
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