Business succession planning involves developing a strategy for what happens when an owner leaves the business, retires, or passes away. It sets out step-by-step instructions for what to do, specifically when it comes to a transfer of ownership. Business succession plans are most critical for small and family-owned businesses and should be included in the owner's estate plan.
Effective business succession planning ensures an organization continues to function following the exit or death of an owner, minimizing the associated costs and disruptions to the business while ensuring its longevity. In sum, business succession plans, if drafted with the right language, minimize risks.
Knowing the risks can help you avoid them. Many risks exist when business succession plans are not created for a small or family-owned business. Some of the more common risks include:
Again, these risks are just a few examples of what a strong, solid business succession plan can help you avoid.
There are two main types of succession plans: long-term and emergency.
Long-term planning involves proactively looking ahead and preparing for an eventual transfer of ownership, such as when an owner retires. It often requires identifying and developing talent over an extended period to prepare individuals to step into key leadership roles.
A long-term business succession plan should be reviewed and updated regularly based on the company's changing needs.
An emergency succession plan manages a sudden change of ownership. For example, an owner may die unexpectedly, and this event can send the business into a downward spiral.
An emergency succession plan considers the legal transfer of ownership and interim measures to follow while longer-term plans are developed, such as the appointment of an acting successor.
Choosing a successor for your business often depends on the type of business you own and its legal structure.
A succession plan for a family-owned business may identify a younger family member as the successor. In this case, family dynamics often come into play on top of practical business considerations.
If the business is not family-owned (or to account for various family dynamics), a succession plan may provide for the sale of the deceased's business interests to another partner, an employee, or a third party, like a competitor.
When choosing a successor for your business, start by looking carefully at the strengths and weaknesses of any potential successors, as well as their desire to move into an ownership or senior leadership position.
Relevant considerations include assessing and identifying training and mentorship opportunities for potential successors to ensure they are prepared to take on the role when the time comes.
You may also want to seek professional advice from a lawyer as to your options. It's best to do this as soon as possible, as business succession planning can be a complex and time-consuming process requiring detailed consideration.
Business succession planning can be complex, involving the preparation of a range of documents.
It may require existing governing documents, like a partnership, operating agreement, or articles of incorporation, to be updated. It may also involve drafting new documents, including:
The circumstances of a business and its specific succession plan will determine the documents needed to execute it. A business succession lawyer can advise you on the relevant paperwork in your situation and draft any technical documents for you.
Business succession plans will and should be unique to your business and your needs. That said, there are some common, key elements that should be included in any and all business succession plans.
Business succession planning is not without its challenges, especially when it comes to family-owned businesses. Issues for consideration include:
By obtaining professional advice when creating your business succession plan, you can consider these issues and find out how best to manage them in your situation.
Risk reduction is what a smart business succession plan is all about. At LL Law Firm, our business succession planning attorney in Roseville, California, will take the time to build a solid succession plan intended to significantly reduce risk. Contact us today by filling out the online form or calling us at (916) 619-2349 to schedule a consultation.
Succession planning in California, is an often overlooked aspect of business ownership. This is a problem because it creates unnecessary risks. When key employees leave the business for whatever reason, the business can be detrimentally affected and go downhill quickly. But with a succession plan in place, leadership remains intact and harm to the business can be avoided.
At LL Law Firm, our estate planning lawyer based in Roseville, California handles business succession plans for business owners. We aim to keep your business successful regardless of any changes you face over the years. Contact us at (916) 619-2349 to schedule a consultation and to make sure your estate plan has all the tools you need to safeguard yourself, your loved ones, and your business.
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