Business Succession Planning
For a business that is owned by a few individuals such as members of a family, business succession involves planning proactively for the transition to new management and to new controlling ownership after the senior or majority owners and managers die, retire, or become disabled. Typical issues in business succession planning include
- How to value, and how often to re-value, the entire business or ownership interests in it
- Identifying the skills, experience, and character traits that future owners or managers of the business should have
- How to give key employees rewards or incentives to keep working loyally for the business
- How to fairly treat family members who do not participate in and should not have a future role in managing the business
- What restrictions should be placed on existing owners’ sales or gifts of their interests in the business
- What events (death, disability, divorce, bankruptcy, retirement, being fired for cause, etc.) should trigger a buy-out of an owner’s interest in the business, and at what price
- The terms on which the business or the remaining owners should pay for the ownership interest of an owner who has died, quit, retired, become disabled, filed for bankruptcy, etc.
In advising and assisting their closely-held business clients, lawyers use such tools or methods as life insurance arrangements, recapitalizations, buy-sell agreements, non-competition covenants, stock options and restricted stock awards to key employees, and deferred compensation arrangements. Business succession planning is not an all-or-nothing proposition and can be done in incremental steps over a period of months or years.