Family business owners have an obligation to their stakeholders to ensure that they have an appropriate business succession plan. Among the many responsibilities a business owner has in leading an organization, one of them is to plan for the future succession of the business when the owner is no longer able to lead or wants to retire. When an organization fails to plan for its’ succession, it jeopardizes the future of the company and its employees.
Ideally, succession planning should be part of a business plan from the beginning. However, most business owners begin to plan for succession within five years of planned retirement or other. However, it is advisable for businesses to begin identifying individuals for likely succession and have an exit strategy from the start.
Factors to Consider
There are many factors to consider when planning for succession. One such factor may be the need to appoint a successor earlier than expected. Another may be that the successor is no longer willing to be with the company. Also, there may not be a qualified candidate within the company to lead. Therefore, when putting together a plan, family businesses should consider all factors and craft a plan that takes into account various scenarios.
When considering succession, a sole proprietorship can only transfer assets while a corporation can be transferred. A succession plan should ensure that the company is structured appropriately so that it can be transferred or continue to exist after the owner has died or retired. Therefore, before succession, a family business may need to restructured into a corporation.
Ownership and Management
An owner can decide to transfer ownership and management of the company to different individuals. It is not necessary that the same individual own and manage the company. Therefore, a succession plan should clearly identify ownership and management.
For instance, a succession plan can envision transference of ownership to family members while leaving management to non-family members. Sometimes, ownership is divided equally among family members while one member is selected for management. Also, one may want to divide ownership in unequal shares to family members. It is critical that the succession plan clearly communicate the owners’ desire.
Training the Successor
A business leader should identify a group of individuals early on for succession. This way the leader or owner can begin to understand the skills and temperament of these individuals to groom and develop them for taking over. Developing a group of individuals will allow the owner flexibility in selecting the successor when the time comes to transfer the company. If the plan involves succession to family members, it is important to involve them in the business and communicate with all family members their roles and responsibilities.
Philadelphia Business Lawyers at Harty Law Group Provide Guidance on Succession Planning for Family Businesses
The business law practice group at Harty Law Group has extensive experience in guiding clients on family business succession planning. Our Philadelphia business lawyers will treat your business and family with sensitivity and prepare you for a smooth transition of your business so that you can retire with peace of mind knowing that your legacy and reputation are protected. Call our offices at 267-262-5650 or contact us online to start your succession planning. From our offices in Philadelphia and Haddonfield, we assist clients throughout Pennsylvania and New Jersey.