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Business Succession Planning

Business Succession Planning
Business Law Areas

No company can survive without an able owner or manager at the helm. In the event of a key person’s sudden death, illness, or retirement, businesses are often left scrambling to find a suitable replacement. Large corporations and small businesses alike can avoid a tumultuous transition by establishing a succession plan

If an owner or shareholder does not have a succession plan in place, his or her stake in the company is either passed on to relatives as part of the estate, absorbed by other shareholders, or a combination of the two. In family-owned businesses, this often leads to disputes between siblings and other relatives. Those more active in the day-to-day operations of the business may feel entitled to larger shares than others who are less involved.

In larger corporations, employees and clients may leave the company for fear of instability if there is no succession plan.  Additionally, remaining shareholders may not have sufficient resources needed to purchase the shares of the exiting or deceased shareholder. This can lead to a situation where a spouse or child of a deceased shareholder attains an ownership stake in the company which can result in disputes, stalling progress and possibly leading to a loss of assets. Furthermore, if the exiting/deceased shareholder had a management duty, his of her replacement may not be equipped to take over this role in such a delicate transition time.  This can also adversely affect the company's progress and future success.

An attorney with expertise in business and estate planning can help owners and shareholders put together a succession plan that facilitates a smooth transition. Plans are customarily created after employees, coworkers, shareholders and family members have been consulted and goals for the future of the company have been outlined.

Succession planning can be tailor-made to fit any business model and should address the following issues:

  • Whether the business or shares will remain within the family. With a retention plan, a spouse, children, or other relatives can retain control of assets.
  • Whether shareholders or vital employees should be offered a larger stake in the company. Interested parties stipulated in the plan can be granted the right of first refusal, or the ability to accept or reject the shares of the exiting or deceased owner before they are offered to individuals outside of the company, with the price of shares to be determined by a valuation mechanism agreed upon during succession plan negotiations. 
  • Coordination with an estate plan, including minimization of potential estate taxes.
  • Preserving “institutional memory” when current managers are no longer running the show.  For example, you can empower advisors to aid the transition team and ensure continuity, oversee day-to-day operations, provide provisions for heirs who are not directly involved in the business, and provide education and training to family members and key employees who will take over the company.
  • Establishing measures to ensure the business has enough cash flow to pay taxes or buy out a deceased owner’s share of the company.
  • Implementing a family employment plan with policies and procedures regarding when and how family members will be hired, who will supervise them, and how compensation will be determined.

 

Our Firm

Establishing a succession plan is an important step in the life of a businesses, particularly for smaller, closely-held, and/or family businesses.  The Law Office of Cheryl Gabes Rice, LLC strives to educate business owners and management regarding the various interests at stake and the details to be considered in planning for the future of the business.  We listen to our clients, taking time to understand the various dimensions of the business and its owners in order to determine how best to achieve their succession planning goals.


The materials appearing in this website have been prepared by the Law Office of Cheryl Gabes Rice, LLC for informational purposes only. The information you obtain at this site is not, nor is it intended to be, nor should it be construed as, legal advice. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. You should consult an attorney for advice regarding your individual situation.

The Law Office of Cheryl Gabes Rice, LLC is located in West Hartford, Connecticut and serves all of Hartford County including, but not limited to, Avon, Berlin, Canton, Cromwell, Farmington, Glastonbury, Newington, Plainville, Rocky Hill, Simsbury, Southington, Wethersfield, and surrounding towns.



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