LET’S TALK – SUCCESSION PLANNING FOR YOUR BUSINESS
An entrepreneur who builds up a successful business will naturally want to make sure that his (or her) life’s work continues to flourish after they are gone. They may not want their heirs to fight over it, dispose of it or even liquidate it if they cannot agree. Just like planning what to do with one’s estate and making specific bequests in a will, the entrepreneur needs to plan for the future of the business.
In the worst-case scenario, which we see surprisingly frequently in practice, an entrepreneur or business owner is the sole shareholder and director of his company and dies unexpectedly, leaving the business in limbo and the executors and family with a problem.
Obviously, it is better to plan for one’s own ill-health and mortality during one’s lifetime by choosing competent people to join the board and diversifying the ownership of the shares. In a family company, difficult choices may have to be made to bring some family members but not others into the business, whether as directors or shareholders. The important thing is to make plan for the future, and start implementing it in good time.
As the shares in the company will form a substantial part of the entrepreneur’s estate, tax planning is essential. Many options are available. They should make a will and take advice on, for example, making lifetime gifts of shares to other family members or setting up a family investment company or employee benefit trust.
A director must exercise his duties and responsibilities personally. In principle, they cannot be delegated to others. They cannot be exercised by an attorney acting under a general power of attorney, nor under a lasting power of attorney (which is used mainly to protect a donor who loses mental capacity). Thus, if the sole director and shareholder dies or loses capacity, there will be no one left who has authority to manage and run the business or even appoint a new director. The company’s bank account may be frozen and new directors cannot be appointed until probate has been obtained, the shares have been transferred and the new shareholders can resolve to do so. This takes time, so it is essential to have at least two directors to ensure that, if something happens to one, the other can continue to run the business.
Planning for your succession can be difficult, but we are skilled at listening and advising business owners and their families on structuring their affairs and managing change.
If you would like advice on succession planning for your company or your overall estate, please speak with Stephen Morrall (corporate) or Rachel Mainwaring-Taylor (tax and estate planning).