How to Avoid a Family Fight over the Business

In coming years, millions of Baby Boomers, those born between 1946 and 1964, are expected to retire in the U.S. In fact, by some estimates nearly a quarter of this country’s population will be aged 65 or older within a few decades.

You have spent most of your life building a business such that when the time comes, you do not want to see it all go up in flames. You certainly do not want that business to kickstart a fight that could tear your family apart. What you need is to ensure your family business has a succession plan.

What Is a Succession Plan?

A comprehensive succession plan is a set of legal guidelines to ensure an orderly transfer of financial control and executive responsibilities to a new generation of leaders. A multi-prong approach to succession planning is recommended.

Identifying Leadership

A business owner must identify the individual who has the skills to run a business. A succession plan can sometimes divide the leadership roles, with one person running the business and another in a senior role overseeing long-term development and planning.

Aligning with Your Estate Plan

Business owners also must consider their personal estate plans when devising a succession plan. Business owners need to be proactive about estate planning and succession planning. Ask an experienced estate planning attorney about both processes as ongoing strategies. That means you do not create an estate plan or a succession plan and file it away until you want to retire. Circumstances can change, so you will probably periodically need to review it and make sure everything is up-to-date.

Handling Multiple Owners

When multiple owners are involved, a succession plan should create rules and procedures for other owners who might want to hire friends and relatives for key positions. The company’s founders must consider what happens if an owner gets a divorce, suffers a disability, or declares personal bankruptcy. These types of situations can change the rules within a buy-sell agreement, the master document that details the rules between who gets what and how a company is organized in the future.

Equity Transfer and Voting Rights

A succession plan can also state the rules for issues involving transferring of equity and shares of a company to family members. In addition to putting into writing exactly who can be a transferee and the amount of equity they are allowed, business owners should use the succession planning process to address issues related to voting rights. A succession plan should also specify the financial terms at the time of an owner’s death or sudden exit.

Do Not Delay

While avoiding such a decision-making process might appeal to younger executives, delaying these decisions and processes creates more uncertainty in a company’s ongoing success.

Whatever the size of a business, whether a family business owner or one with multiple owners, every business needs to create a succession plan sooner rather than later. If you do not, you may leave a mess for the next generation of owners and employees.

If you need help with business succession planning or aligning it with your estate plan, do not hesitate to contact The Stegall Law Firm for a consultation.