Succession planning for the future

Every business owner needs to consider what will happen when the time comes for passing on their business and ensuring this transition is well planned and thought-out is important for the future success of the organisation. 

It can be both a daunting and sensitive process, especially if it is a business you have built up yourself and if there are more than one natural successor or non-family business partners.  Therefore, what are the key legal considerations to think about?

For a limited company, you should have a Shareholders’ Agreement in place, which sets out what happens to your shares and those of other shareholders when leaving the business. It is likely that there will be provisions giving any other shareholders the entitlement to buy the shares first, so this will need to be addressed and changed, if you would prefer the shares to pass otherwise. It is important for shareholders and directors to get on with each other as serious differences of opinion or shareholder disputes can damage or destroy a business.  For this reason, the right for other shareholders to buy is generally included. If shares are to pass otherwise, please consider whether any incoming shareholders will be able to run the business harmoniously with the existing shareholders.

For a partnership, you should have a Partnership Agreement in place.  This will generally provide for the remaining partners to buy you out if you wish to leave.  It will not allow for an incoming partner without the consent of the remaining partners.  An alternative arrangement would need to be agreed upon.

Good communication about future plans is important for helping to avoid disputes and it is essential not to shy away from what might be difficult conversations to reach an outcome which is satisfactory for all.

Think about the value of your business and whether you are looking to receive a payment for your ownership or whether you are planning to gift it as there may be tax considerations.  Other options could include setting up a trust and putting your rights into that.  Any such arrangements will be subject to the Articles of Association and any Shareholders’ Agreement, in respect of a company, or a partnership agreement in respect of a partnership.

Consider if you will you leave the business completely or if you will have a phased exit, perhaps moving into a consulting role. Leaving suddenly can leave a huge vacuum, which it could be hard for the business to recover from.

Everyone wants to leave a lasting legacy, so don’t be afraid to seek outside help to plan and navigate your departure to ensure the future success of the business.

Sarah Astley can be contacted at s.astley@gullands.com