One of the important and necessary parts of your organization’s business strategy is succession planning. A succession plan can help protect a business in case of retirement, a divorce or the death of the owner or key executives in the business. In other words, succession planning is all about laying structures of how business is going to proceed once the owner is not around.
Like everything else in a legitimate business, the succession plan should be a dated, signed and stamped legal-proof folder. As the business owner, your succession plan should address these six legal issues.
1. The Name of the Successor
While succession plans usually cover retirement, divorce and death, there are some extraordinary situations like natural disasters and kidnappings that should never be ignored. Having a successor’s name attached to the documents ensures that an incompetent person will never take over your business.
Should you fail to include the name of a successor, the courts will have to come in and decide; in any case, this is likely to lead to disputes that contribute to the failure of the business.
2. Distribution of Property
If some of the business property is registered in the previous owner’s name, then this should be addressed immediately. Imagine the company’s vehicle ending up with the family and not used for business purposes. Properties in your name that you use to promote and run your business may even include land, an estate planning attorney can help you draw up all the necessary documents and ensure that they satisfy legal requirements.
Property distribution is critical because one business owner may want the property to stay in the business. And, another business owner may wish to have the property given to family or to themselves for retirement.
3. The Business Structure
No succession plan is a one-size-fits-all template; each business structure requires its own plan.
For example, companies have a structure that requires a certain form of succession planning, something your organization’s lawyer can explain.
In case of partnerships and sole traders, the managers and owners can receive succession decisions fairly freely; the presence of a board of directors makes things a little complex.
4. Taxation Issues
Unfinished business, debts and outstanding taxes should be resolved before succession occurs. Ignoring them means that the successor will inherit debts they had nothing to do with – especially in the case of partnership and sole trader businesses. Financial management should be thoroughly addressed in the succession planning documentation.
5. Planning of Benefits
Planning for succession is not only critical in case of an emergency, but also in case the management or owner decides to retire. The major decision in this scenario is whether a manager or owner will go on receiving benefits even after they leave the business and what will these be. This is the moment a retirement package is drawn up.
6. Employment Issues
Employees are also affected in case of a succession. They have the choice of either following the management or leaving the business altogether, should a partner leave. It is important that you guarantee employee loyalty and protection.
Your employees need to feel secure that their running agreements and contracts are going to be honored. For any business planning to last through the years, succession planning is a critical component that should not be ignored. Never hesitate to create an exit strategy while you are in a position to make the decisions.
An internal business lawyer will offer you advice on the best practices depending on your business structure. However, if you decide to retain a lawyer from outside the company, you will need to find one that deals in succession matters.