To ensure the success of your family business continues from generation to generation, as well as quality business plans, you need to have a clear succession plan regarding the running and ownership of the business in the long term.
Here are our top tips for planning succession to your family.
Who is going to run the business?
Different areas of your family businesses may be run by different family members and so tensions can arise when discussing who is going to take control in the future. It’s advisable to have something in writing to lay out a management and decision making structure that allows commercial decisions to be made without being stymied by deadlock and dispute.
When should control pass?
It’s unrealistic to expect others to take over from you overnight. It’s therefore important to have a phasing out period during which you can delegate key tasks to the next generation, thereby sharing responsibilities with them and reducing their reliance on you – while maintaining a close watch! Passing on the business in this planned way is more likely to continue the business’s success and will also help you to identify those family members who are capable of running the business in the future.
Who is going to own the business?
There is no right or wrong answer to that question and different family members may have different views! For example, some members of the family may wish to see the business sold, whereas others want to keep it in the family. Whatever the views, discuss them early and document the consensus to try to avoid any future conflict.
When should the business ownership pass?
The issue of whether to pass shares during lifetime or on death is often a difficult one and we recommend speaking with your professional advisors. It is important to consider both your family’s current needs and any tax implications at the time of passing the shares. For example, you may wish to give your children a tax-efficient income now by giving them shares and declaring dividends. On the other hand, you may wish to keep all your shares as your retirement income but that can have significant tax consequences. Your legal and tax advisors will be able to explain all your options and the pros and cons of each.
What steps can I take to protect the family business for generations to come?
You need a proper succession plan if your family business is going to continue to succeed for future generations. This should involve discussing your wishes with your legal and tax advisors and with your family before deciding the best time to pass on the business and who should own and run it in the future. There are a variety of options available when succession planning including; wills, trusts, shareholders agreements, family charters, employment contracts and possibly even pre-nuptial agreements. Although it may seem daunting, the process needn’t be. Ultimately, it’s about discussing, then deciding what is best for you, your family and your family business. That’s the hard part. Once the plan is decided in principle, it’s up to your advisors to document the arrangements to give you the comfort that comes from knowing you’ve taken steps to ensure the successful future of your business.
For further help and advice with succession planning please contact Farleys’ commercial law team on 0845 287 0939. Alternatively please complete an online enquiry form.