WHAT is "succession planning"? Put simply, I mean planning to match your aims for your business with the aspirations of your successor. But who is your successor? For many owner/manager businesses, it is a purchaser, perhaps a competitor, supplier or joint venture partner but it could be a fellow shareholder, the management team backed by a third party funder such as private equity backer or perhaps an employee benefit trust. The key document for the passing of the reins is a sale and purchase agreement. For others the obvious successors are family members, children most often and the key document is your will, trust documents and articles of association of the company. If you are one of those business owners who find it difficult to contemplate the time when you will no longer be in charge, this is the time to reflect on what the business will look like when you are no longer there and how best to preserve the value that you have created into the next generation. But just as you must examine your own motivation so you must consider those of your successor. You can start by putting yourself in the shoes of your successor: in what sort of order would you like to take over? This means addressing the issues that are likely to reduce the value of your business and to promote the points that are likely to add to the value of the business. Then put time, energy and sometimes money into making sure those issues are attended to. At the same time if your plans are to hand on to the family, it is best to speak to those involved. You may have always assumed that your children wish to take over the business. They may not. They may prefer a share structure which enables them to draw an income from the business whilst leaving its management, and hopefully expansion, to professional directors. It is not always possible in these situations to do fairness by equality between all children: allocation must also give credit for work and time devoted or to be undertaken as part of the settlement to avoid resentment. You may want to consider protecting the business from claims from spouses or spouses of children on relationship breakdown by entering into pre/post nuptial agreements.
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