It’s never too soon to have a well thought out succession plan for your business. As a business owner, you’ll be aware of its importance, but have you been able to take the time from your busy schedule to finalise a legally binding succession plan? Sarah Miles from the Company and Commercial team at HRJ Foreman Laws Solicitors provides some key legal considerations for your succession planning.
A PWC survey (Family Business Survey - The missing middle – bridging the strategy gap in family business, 2016) found that only 12% of family businesses reach the 3rd generation. It also found that a minority (15%) have addressed succession planning in a meaningful way. It’s clear that if you don’t have a succession plan in place, you are not alone.
Writing your shareholder agreement
Stepping down from a family owned business can be a complex and emotional process. The further in advance you can discuss your plans with your family and other shareholders, the better. Their acceptance of an updated shareholder agreement and their participation in succession training programmes are essential to a successful transition. What do you foresee for your future? You may wish to retire early, or continue to be a shareholder. You may wish to retain voting rights on big business issues or step down altogether. How will you divide shares between your spouse and your children? How can you be tax efficient? If you don’t have successors in mind, do you wish to build a plan that prepares your business for sale?
Planning your future income and your family’s inheritance
A Trust may be an important consideration if you want to continue to have a say in the business. You may also wish to protect the inheritance of your family members from external influences. If your children are not going to be your successors, or be involved in running the family business, you can still arrange for them to receive an income from the dividends by holding shares in a trust.
Understanding tax implications
It’s important to know about any tax implications as a result of your updated shareholder agreement or any intentions stated in your Will. You can then consider the most effective routes for you and your family. These include inheritance tax, capital gains tax, corporation tax, income tax, stamp duty and VAT. A Trust can be an efficient way to manage capital gains and inheritance tax when you are transferring shares to the next generation.
Checking all your contractual obligations
As a part of your succession planning, it’s important to review your contractual obligations with your solicitor and determine the best route to handover to your successor. This could include any customer and supplier contracts, leasing agreements, maintenance contracts and your employee contracts, or intellectual property rights.
For legal advice about succession planning for your family business email us at firstname.lastname@example.org and talk to one of our experienced directors in our Company Commercial department – Judith Fairley, Lisa Gray, Sarah Miles.