Planning for Identifying Successors
A passionate entrepreneur readily shares his or her passion for their business with others, but may find it difficult when contemplating who to select as their successor in the business. The very qualities that serve the entrepreneur so well, such as self-confidence, focus, self-reliance and drive, can conspire to prevent the business owner from identifying with and actively engaging in the business succession process.
The value we provide to our clients is more than just drafting documents and forming entities. We engage the business owner in analyzing the business and the potential successors, in the context of assessing not only the owner’s tax and financial objectives, but also determining what is in the best long-term strategic interest of the business.
Among the many considerations of the business owner when identifying potential successors are:
- Determining whether a capable successor presently exists – Many owners desire to see a child or children take over the family business. But if the children are too young or inexperienced to immediately assume control, who will operate the business until the children are ready? We may establish an interim holding structure that provides the flexibility to address planning issues more definitively at a later time.
- Selecting from among several potential successors – Often in a family business, there are several family members actively involved in the business, usually with varying degrees of skills or areas of expertise. Failing to appreciate differing levels of interest and treating everyone equally on the assumption that everyone will “work things out” can lead to emotional conflict within the family and act as a disincentive for family members to take on additional responsibilities.
- Acknowledging in a family business that the best successor may come from outside of the family – Where a non-family member successor is central to the continued success of the business, it is critical to properly motivate and incentivize that person to remain committed to the business now and after the owner leaves the business. We may suggest using employment agreements, phantom stock, stock appreciation rights, deferred compensation or other incentive arrangements to allow the successor to share in the growth and success of the business.
- The timeline for the owner to transfer control – The transition process for few owners is rarely a specific date on which the owner gives up complete control and no longer participates in the business. For most owners, once a successor is identified, they work closely with that person during the transition process, acting as a mentor. Even if the owner no longer controls the business, they may still be active in the business in a planning or strategic role, e.g., serving on the board of directors, or overseeing the improvement of a specific process or business line.
Related Practice Areas
- Business Valuation, Structure & Discount Planning
- Planning for Identifying Successors
- Family LLC & Partnership Formation
- Income, Estate & Gift Tax Analysis
- Estate Planning
- Estate & Trust Administration
- Establish & Restructure Business Entities
- Developing a Transition Plan for Business Succession, Including Assets, Ownership & Control
- Analysis & Restructuring of Assets to Meet Client Objectives
- Analysis & Preparation of Shareholder, Operating, Partnership & Other Ownership Agreements