Posted on 26.6.14 by Christian Mancier
Succession planning, whether that be for limited companies, LLPs or partnerships, has never been more than important for the owner managed business as we come out of the recession and business valuations increase. We all know that in most cases the priority for business owners is the day to day running of the business and succession planning is one of those things that is always at the bottom of the “to do” list.
Unfortunately when something then happens unexpectedly to a business owner then this can cause a multitude of issues. These issues can range from conflicts between the last will and testament of the deceased and the constitutional documentation of the business creating uncertainty and argument through to disputes between the relatives of the deceased and any surviving co-owners where the surviving business owners are unlikely to 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 business owners to raise funds to buy out a deceased business owner which may either not be possible or has a significant impact on the cash flow of the business going forward. In the worst case scenario the surviving business 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 share of the deceased business owner.
The implications of poor succession planning can therefore be detrimental, 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 unresolvable or difficult situations.
This usually involves having the conversations now between the business owners about what happens if the unthinkable were to happen, 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 such that the funds to buy out a deceased business owner will be readily available by virtue of the insurance taking away the headache of how to finance the buy-out of the deceased business owner’s interest in the business.
In addition having these conversations now also provides a clear approach from all concerned and their families about what is to happen in those doomsday scenarios and allows protections to be put in place avoiding any unexpected surprises when the time comes by documenting everything in a holistic and consistent approach. In addition it’s the perfect opportunity to take some advice on Inheritance Tax issues and implications 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.