Flagel & Papakirk LLC

Severance agreements: What your business needs to know

2020-10-05T23:19:26Z

As a business owner, you may find it difficult to keep up with human resource laws and best practices. They seem to change constantly, so you may not be confident navigating the HR landscape alone. Separating from an employee can be a particularly complex issue. You may wish to offer a severance agreement, but what exactly does that entail?

What it is

A severance agreement is a contract that outlines the details of ending an employment relationship in a manner agreeable to both parties. Typically, the departing employee gets extra pay or benefits in exchange for agreeing to certain post-employment conditions.

When to offer

Severance agreements are appropriate in some, but not all, instances. You may have promised severance in an executive’s initial hiring contract, or you may use it to encourage employees to take part in a voluntary layoff. It can also give you a measure of security when terminating a worker who may otherwise cause concern.

What to offer

Each situation is unique, so each severance agreement depends on the circumstances. Specify when the employee will leave the firm and what each party will gain. You may offer severance pay, continued health insurance, rehire assistance and other perks that will be of value to your departing employee.

What to ask for

As with any termination, the employee must return company property including security badges, electronics and keys. A severance agreement may also include restrictions on what the employee does after leaving. For example, you may mandate that the employee not disparage the firm, disclose any intellectual property or compete with your company for a specified amount of time. Ending a business relationship can be difficult. A severance agreement may soften the blow for both parties.

Avoid these common mistakes as your business grows

2020-06-26T23:18:59Z

After pouring time, money and effort into your small business, you are prepared to take your enterprise to the next level. Expanding your business can result in increased profit and bolster your brand reputation. To scale successfully in your market, avoid these common business growth pitfalls.

Choosing the wrong business entity

The decision to form a corporation, limited liability company, partnership or another type of business influences taxes and operational aspects of your company. When it is time to form a legal business entity, carefully research the benefits and drawbacks of each option. Your choice must depend on the specific organizational and financial characteristics of your business.

Partnering with the wrong firm

Investors and partners often facilitate small business growth and expansion. However, partnering with a person or entity that is not quite the right fit can impact your business. You may find their influence dilutes your strategy, decreases your profit and diverts resources from your goals. Prevent some of these issues with a detailed partnership or investment agreement that clearly establishes expectations for the endeavor.

Avoiding business loans

Financing is essential when you grow your business. Seeking loans and credit lines with favorable terms when your company is at a high point can create a lifeline if business slows. You will have cash on hand to take advantage of new opportunities, a cornerstone of organic entrepreneurial growth.

Using an old business plan

If you developed a business plan when you first started your company, review that document carefully before you expand your business. Update the plan as needed to reflect your new business objectives and goals. If you never had a business plan, put one in place before moving forward. You must submit a business plan to register a legal business entity and access financing. Mistakes happen when you build a business. However, preparing for and recovering gracefully from these mistakes can help your company survive and thrive after expansion.

4 things to include in a separation agreement

2020-03-27T20:25:38Z

When a business owner wants to leave the company, a separation agreement can keep issues such as asset transfers and liability for debts, taxes and judgments from cropping up afterward. Ideally, the owners already addressed many of the matters when they drafted their partnership agreement. Regardless, it is a good idea to also create this legal contract to offer further protection for both the departing owner and those who stay and keep the business running. Here are four matters that business owners should address in a separation agreement.

Transfer of assets and liabilities

First, owners must identify all of the company's assets and liabilities. This will help determine the value of the leaving owner's interests in the business. The separation agreement should detail the method of compensation and the amount that the leaving owner will receive. It should also include what liabilities, if any, the former partner will remain responsible for.

Treatment of shared contracts

Owners should gather all the documents that create liability for the leaving partner, such as:

Contracts
Loans
Leases
Lines of credit
IRS documents
Accounts payable

Each type of document may have specific processes for removing a cosigner's name.

Indemnity agreement

It may not be possible to remove someone from a contract, or there may be other possible liabilities that may cause damages for the former partner. So, the separation agreement should explain the protection he or she has from lawsuits if the business becomes liable in a breach of contract dispute or other litigation. This could involve an indemnification escrow account, security interest in the business's assets or some other arrangement.

Right to audit clause

A separation agreement may provide for ongoing compensation that depends on the company's revenue. In this case, the former partner may want to have the ability to review the records and ensure that the business is fulfilling its side of the agreement. This may be especially important if the separation is occurring due to conflict and there is suspicion of fraud. However, even if everyone is separating on good terms, it is a good idea to include this clause.

Planning for successful business starts with a succession plan

2020-02-07T19:28:13Z

You’ve put your whole life into your business, and it’s booming because of it. But success is never guaranteed, especially when you don’t have a plan for the future. Over 80% of family businesses don’t have a system in place for handing the reins to the next generation. Regardless of whether you think it’s too early, you’re worried about conflict or the process looks overly complex, it can be a necessary step to put your business in a position to succeed after you step down. The Family Business Institute found that only 30% of family-owned entities make it to the next generation, and beyond that, the numbers really dwindle. They discovered only 12% are still standing with the third generation, and that drops to just 3% for subsequent groups. They reported that the main problem was the absence of succession planning. Start taking stock The first step you’ll want to undergo is finding out exactly what your holdings are so you can get an accurate assessment. You can start with the balance sheets to get an idea, but you’ll also want to incorporate more complex things like investments, equipment and intellectual property. From there, you’ll have to move on to valuation, which you can use to find out the overall worth. Coming to terms Once you know what it’s worth, you can determine where everything will go. You can pick beneficiaries of the business, and also who will take on larger leadership roles. You’d do well to listen to your family’s input to hear what they want, need or can handle. In the end, it may be up to you to determine who gets what responsibilities, where you can divert assets and what your role will be through the transition. The sooner you start, the more time you’ll have to make sure things go smoothly. Start educating your replacements now so you’re ready to hand things over. Setting up the whole process may be the most daunting part, but proper planning could set your business on the road to prosperity for years to come.