The Business Magazine March 2024

GL Law looks at Business Succession Planning for family businesses

Sponsored by

Share

The Business Magazine article image for: GL Law looks at Business Succession Planning for family businesses

The Covid pandemic has highlighted the need for business leaders to seriously think about the future protection of both their business interests and personal wealth. Succession planning for a family business requires careful consideration of what the future holds on both an operational level but also in terms of management and ownership.

Heledd Wyn, Director & Head of Private Client, Long Term & Elderly Care looks at what to consider...

Future generations

Many families would like to think that the business they have built up will be there to benefit future generations, even if those family members do not themselves have the inclination or ability to run it well. The key to this is advance planning, usually by separating the management of the business from family beneficiaries. A typical structure will therefore be:

Professional managers, who deal with the day-to-day running of the company and are involved in strategic planning – rewarded by salaries and other incentives, probably profit-linked.
Shareholders who have ultimate control and may have influence over strategic planning – these may be family members thought to have the necessary skills and/or professionals
Shareholders who are other Family members who benefit from the trust but have no control over the company.

Succession planning of this sort should involve several legal solutions, including:

Shareholder agreements & articles

These regulate the interaction between different shareholders in different circumstances and can deal with matters such as a shareholder dying or becoming incapacitated, or a shareholder wishing to sell. Generally speaking, the aim will be to keep the actual shareholding within a relatively tight family circle. These can be linked with appropriate life assurance products to provide funds for shareholdings to be retained within the family.

Wills

Everyone substantially engaged within a family business should have a properly drawn up Will appointing executors with sufficient powers to deal with a person’s shareholding and the wider implications of their death on the company. Wills are also often the appropriate vehicle for the creation of trusts. The absence of a Will brings into play the “rules of intestacy” which will usually be inappropriate to the situation and may cause a disastrous fragmentation of the company.

Powers of Attorney

If someone substantially engaged in a family business loses mental capacity, their management function and control of shares cannot be continued until someone obtains a Court Order, usually a difficult, lengthy and expensive procedure. The “period of uncertainty” can have an adverse effect on the company. To avoid this, everyone in this position should make a Power of Attorney, which is an advance appointment of some person(s) to have legal authority should loss of capacity occur.

Legal advice for family businesses

At GL Law we look after our clients with wraparound services from the business legal team and private wealth solicitors, enabling us to look after and advise clients on a wide range of matters.

Our Business Life Plan is designed to provide protection for both your business interests and private assets.

If you would like to book an appointment to discuss your situation, we offer a fixed fee consultation where you will meet with both our business and private client team.