When the four generations of Royals were pictured at young George’s christening recently the succession to head of the ultimate Family business was very clear. The reins will be passed from one to another in time-honoured fashion.
But for other more modest businesses, succession planning is far from defined and one of those things that is always bottom of the ‘to do’ list.
Whether it be for limited companies, LLPs or partnerships, succession planning has, however, never been more important, so how do we bring it into sharper focus. Unfortunately we are often prompted when we hear about something happening unexpectedly to someone else. Not being prepared for the sudden death of a business owner can cause a multitude of issues.
Conflicts between the last will and testament of the deceased and the constitutional documentation of the business creates uncertainty and argument. Disputes between the deceased’s relatives and surviving co-owners are common when they don’t want the deceased’s family members involved in a business they may have had no prior involvement with. Or there is pressure from the deceased owner’s relatives on the surviving business owners to buy out the deceased’s interest in the business.
These issues can place immense pressure on the surviving owners to raise funds to buy out a deceased business owner. This may simply not be possible or has a significant impact on the cash flow of the business going forward. In the worst case scenario the surviving owners may have to sell the business to a third party or wind the business up if they can’t afford to pay out.
The implications of poor succession planning can be seriously damaging, not only to the business, but any other joint business owners, shareholders, employees and, of course, families. It’s time for businesses to proactively plan for the future and ensure they are not left in these circumstances. This usually involves having the conversations now between the business owners about what happens if the unthinkable were to take place, taking proper advice from the appropriate professionals and putting legal documentation in place to reflect the outcome of those discussions.
In certain situations insurance may even be available to back up what has been agreed so that the funds to buy out a deceased business owner will be readily available when required.
In addition having these conversations now also provides clarity for everyone concerned about what would happen in a doomsday scenario and allows protections to be put in place. Documenting everything in a holistic and consistent way is essential.
In addition it’s the perfect opportunity to take some advice on Inheritance Tax issues where the proposed structure going forward may also be a way of making sure your loved ones don’t inherit a large and unexpected inheritance tax bill.
Christine Thornley, of our Wills, Trusts and Probate Team, for more information you can speak to one of our team on 0161 930 5151