The Hedge | Brutal Honesty Over Hype Since 2008
Most California business owners have no succession plan. The business that took decades to build has no documented answer to: what happens if the owner becomes incapacitated? What happens at death? Who is authorized to operate the business, access its bank accounts, and honor its contracts when the owner is not available? The absence of planning doesn’t prevent these events — it just ensures they’re handled badly when they occur.
The Entity Documents: The First Line of Defense
For LLC owners, the operating agreement should address: who manages the company if the member or manager becomes incapacitated or dies; the procedures for transferring membership interests; buyout rights and valuation mechanisms if a member wants to exit or dies; and the continuity of the entity through ownership transitions. For corporations, the bylaws and shareholder agreements should address analogous issues. These documents are the succession plan’s foundation — without them, state default rules govern, and state default rules were not written for your specific business situation.
The Power of Attorney and Healthcare Directive
A durable power of attorney for financial matters — naming an agent to act on your behalf if you become incapacitated — can include the authority to manage business operations, sign contracts, and operate bank accounts. Without this document, a business owner’s incapacity can paralyze the business while family members seek a court-appointed conservator — a process that takes months and costs tens of thousands of dollars. A well-drafted durable financial power of attorney is the most immediate protection against the operational disruption of unexpected incapacity.
The Buy-Sell Agreement for Multi-Owner Businesses
For businesses with multiple owners, a buy-sell agreement — specifying what happens when an owner dies, becomes disabled, divorces, or wants to exit — is not optional if you want to control the outcome. Without a buy-sell agreement, a deceased owner’s interest may pass to heirs who have no interest in or qualifications to operate the business. A buy-sell agreement establishes: the triggering events, the valuation methodology for the departing owner’s interest, the funding mechanism (typically life insurance for death scenarios), and the payment terms. The time to draft this agreement is now — before any triggering event makes it contentious.
The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.
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