If you are a business owner and know you want to pass your company onto your children or other relatives, family business succession planning will be key to ensure a smooth transition and the continued success of your business.
Without it, family members and business partners can be left in a complex situation. In some instances, the business ends up in the wrong hands, or in worst cases can fail. This can all be avoided with sensible business succession planning.
In this blog we navigate the benefits and risks of naming a family member in your business succession plan and explain how the support of a legal professional can help you to get the best possible outcomes.
What is family business succession planning?
It may be that you are ready to retire from running your business, or that a serious illness or accident means you can no longer oversee your responsibilities. Whatever the circumstance, it’s important you have named a successor that you feel is most suited to take your place.
It can be difficult to think of what may happen when we pass away, but for a business owner it is imperative to the continued profitability of your company.
The legal position on the death of a business owner will depend on the type of business entity you have. For example, a limited company continues but the owner’s shares will pass to the beneficiaries of their estate in line with their Will, or the intestacy rules if no Will is in place. This means that you need to ensure you have organised your wishes as early as possible.
Family business succession planning is just one of the many routes of business succession, in addition to options such as Management Buy Outs (MBOs) and Employee Ownership Trusts (EOTs) for example.
What are the pros and cons of a keeping it in the family?
Naming a family member as a successor can help to retain the business value when carried out correctly. There is also the possibility to maintain involvement and influence over the business, especially when naming a successor you are close to. This could be a bonus if you’re looking for a switched-on, active retirement.
With less third-party involvement, you and your family can have more control on how things are run and the direction your business moves in. This may also mean you can rest easy in the knowledge that your business is in the right hands, allowing you to relinquish control and enjoy the next phase of your life.
However, it can be difficult to identify and train the right successor for your business. This timeframe will need to be factored into the transition process, and the support of a legal professional can be vital to ensure smooth handover.
Naming a family member as your successor can also create potential conflicts at work and in the family. It’s important to have open and honest conversations around your business succession planning. A legal adviser can be a mediator for these conversations, ensuring all parties are on board with the planned transition.
If you own a family business it is also wise to be mindful of your wider estate planning, especially if you have many children. Out of a selection of children, there may only be one that works within the business who would be the natural successor, or the one you had in mind may decide they aren’t interested in the business at all. Be sure that you factor this into your plans.
It’s important to note that going down the family successor route does not provide an opportunity to crystalise the value of the business and de-risk your investment in it. This may impact your wider retirement planning, and professional, impartial advice could be beneficial here.
What is the family business succession process and how can we help?
Careful consideration is needed as to how to structure the succession of the business fairly and in the interests of all family members. The first step when choosing this option is to establish the ideal profile for your successor. Then, identify and evaluate potential candidates using fair and measurable criteria. A legal adviser can help to facilitate discussions in a neutral and constructive space, helping to foster productive conversations.
Once the structure of your business, your ideal candidate profile and your overall aspirations have been identified, a legal professional can then recommend a suitable way forward. They will meet with you and the successor to finalise this agreement and a plan for what comes next for your organisation.
Corporate legal advice can also protect you and your business from elements that your family may not be aware of that could be detrimental to the succession process. If you need advice on planning the future of your business, please contact us today and we can guide you on your business succession journey.
