Succession Planning

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Succession Planning

Written by: Gabrielle Andersen l Insight Team


While starting, building or growing a business can understandably take up most of your focus, it’s always important to keep one eye on the future and on the long-term plan for your business – and for you as the owner.

Turning your mind to succession planning can be an important step in mapping out your future and make you focus on matters such as ensuring you have some key people in the business who are able to eventually take over your role.  This is even more of an issue in family-run businesses, where you might be hoping that other family members will one day take over the business.  Having a clear plan in place for this transition not only helps with your future financial planning, it also provides family members with certainty about their own futures.  Tension between business owners and those who one day hope to take over the business is a really big risk area for businesses, and succession planning is one way to minimise and address potential tension and create harmony within your business, and also your family.

There’s no downside to that!

What Is A Succession Plan?

Succession planning is essentially setting up a framework for the future of the business which allows for your business to remain ongoing and profitable, while you eventually transition out.

Succession plans can take all different forms and aren’t ever one-size fits all.  All businesses are different, and business owners will inevitably have different goals both for themselves and for the future of their business.  For this reason, having the input of legal, accounting, and financial planning advice can only ever benefit your succession plan and provide options to you that you might not have thought of.

What To Consider in Succession Planning

A good succession plan will not only be aimed at the future success of your business.  It will also address issues such as whether you have the right business structure in place, whether you have people involved already who can take over and manage the business, and how you might be able to limit any future potential tax liabilities.

In finding the right succession plan for your business, you and our Canny team will look at the following important matters…

  • What will your role be in the business going forward?
  • Will you still want an ongoing income, or will you be exiting completely?
  • Will you be gradually transitioning out of the business, or will you have a more immediate departure?
  • Who will take over your role within the business?
  • Who will be the key people to continue to run the business, and are these people already within the business or will you need to recruit them?
  • How will your exit be funded?
  • Ensuring you have well thought out financial advice on minimising Capital Gains Tax, Stamp Duty and Income Tax for you and any incoming business owners.
  • If your business succession plan also ties in with your future retirement options, seeking financial planning advice on how best to fund your retirement.
  • Have you considered a sale of business as an option, and how and when might this occur?
  • Is your current business structure appropriate for your business succession plan, or do you need to consider other structures?

Want to know more about business structures from a legal point of view?  Check out this previous edition of our Commercial Law Series: A Legal Guide To Business Structuring where you can review some of the different business structures that are available.

Succession Planning Options

While there are many forms succession plans can take, the following is a list of some of the more common elements of succession planning:

1. Sale of Business – once you turn your mind to succession planning you may decide that you wish to end your role in the business more definitively through a sale of business.  While this means that the business will be sold entirely, the benefit is that you are able to realise the value of the business immediately.  A sale of business can require a lot of planning before the business is ready for sale in order to ensure you obtain the best return on your business.

2. Employee Share Scheme or Employee Share Option Scheme – this is an arrangement whereby employees are either granted shares, or options to buy shares, in the company they work for, usually gradually over a period of time.  Generally, the options to buy shares are tied to certain circumstances such as length of service – this is known of as the vesting of options.  Employee Share Schemes (and Option Schemes) require careful consideration and the preparation of legal documents, such as a Share Option Agreement and a Shareholders Agreement.

3. Buy/Sell Agreement – for businesses that have more than one owner, you may wish to put in place a specific Buy/Sell Agreement which sets out the arrangement for continuing owners of a business to purchase the outgoing owner’s interest in the business or on the occurrence of a specific event, such as retirement or even the death/permanent disability of an owner.  While not often thought of, such agreements can become really important when unexpected situations arise, and can be an important measure in ensuring the stability and longevity of a business.

Legal Considerations In Forming Your Succession Plan

Depending on the succession plan that you choose, you may need:

  • A Buy/Sell Agreement;
  • A Share Option Agreement/Deed – for the purchase of shares, such as through an Employee Share Scheme.  Keep in mind that a Shareholders Agreement should also be in place if you are preparing to offer shares to employees or external investors;
  • Business Sale Agreement – if you are looking to sell the business to an external purchaser.

Other legal documents you should have in place to support your succession plan:

Shareholders Agreements

As soon as your company has more than one shareholder you should have a shareholders agreement prepared.  This is even more important from a succession plan perspective as shareholders agreements support the longevity of a company by providing for incoming shareholders, or what the process should be if the Directors of the company wish to (or have to) sell all or part of their shares.

We have focused on the importance of Shareholders Agreements in our previous Commercial Law Series instalment: Growing Your Business – Shareholders Agreements – take a look to see the benefits of having a Shareholders Agreement.

Partnership Agreements

If you are running your business as a partnership, you should have a Partnership Agreement in place.  This not only reduces the risk of disputes between you and your partner(s), but also ensures that there’s a clear framework in place for matters such as the dissolution of the partnership, if required.

Employment Agreements

All businesses with employees should have employment agreements.  Having these in place is also important for succession planning.  This is both to maintain the smooth running of your business, and also to ensure your business is well set up from a compliance perspective, which may make it more attractive to others looking to take on your business.

Want to know more about Employment Agreements?  Check out this previous Commercial Law Series instalment: Obligations To Employees + Managing Them Efficiently for more information on the benefits of Employment Agreements.

Wills + Enduring Powers of Attorney

Once you have your business sorted it’s important to look to your personal situation to ensure you have planned ahead for your family.

Expert Legal Advice with Canny Group!

When you meet with a member of the Canny team you have access to AccountingFinancial Planning and Legal all under the one roof.  Whilst some firms might work “closely” with your other advisors, we all work together as a team!  This puts your succession planning at an immediate advantage as all of our specialists are able to have a holistic understanding of your business and your personal goals, and can openly collaborate to come up with an ideal succession plan for you.

And while you might be focused on your business when turning your mind to succession planning, you will also have access to Estate Planning advice from our Wills and Estates team who can help you and your family with preparing Wills or ensure they’re updated to suit your new succession plan.  Our Financial Planning team are also here to help you personally in preparing a financial plan to fund your retirement.

Get in touch with our team today to see how we can best support you and your business, and help you create your succession plan.

Pictured, Gabrielle Andersen wearing a long sleeve creme coloured top and dark green velvet looking coloured pants. With her name and working title on the left hand side, there is a dark blue circle that represents Canny Legal's branding colour and a little bit of information about Gaby.

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