4th Jan 2013
The success of any business located in Orange County or anywhere for that matter is built around a few key people. Hence, it is important to have a plan of succession in the event of a key person passing away, getting incapacitated or retiring. Without a business succession plan, the transition from one owner to the other may not be smooth.
Simple but plausible scenarios that may occur when your business does not have a succession plan can be foreseen – and avoided. Take a look at the following:
In a family business, the demise or incapacity of the founder/owner may precipitate disputes among the siblings. The siblings who are more active in the day-to-day operations may demand for a bigger share in the business. Also, without a business plan, the profits of a family business may just dissipate with the estate taxes to be paid.
For companies with more owners and stakeholders, the transition may be marked by insecurity of employees and clients. They may opt to leave the company rather than face an uncertain future with the new owners. Disputes may arise among shareholders regarding transfer of stock ownerships, which can paralyze operations.
Having a business succession plan will avoid such nightmare scenarios depicted above. With the help of an experienced lawyer, a business enterprise can prepare for a future in which the transition between past and present owners will be smooth. A well-drafted plan usually is prepared by the key owners and a lawyer in consultation with the other shareholders and even employees with the long-term goal of the company in mind.
This type of plan is often customized to fit the unique needs of the business. The basic model for most plans falls under two schemes: retention and buy-sell agreements.
A retention plan is usually prepared for a family-owned business. Under such a plan, control of the business still falls within the family. Under the “buy-sell” option, shareholders and key employees (outside of the founding family or core group) are offered a bigger stake in the business. This group will have the first option to accept or refuse the shares before these are offered to people outside the company.
A well-written succession plan will provide a blueprint for shareholders and other members of a business enterprise to know what to do in the event of the death or incapacity of the owner or key personnel. A good plan should also designate an able successor who will steer the business in the transition phase. The smooth turnover of management should reassure employees on their job security and clients about the operations of the firm. An “exit” or retirement plan may be included for shareholders and employees who may opt out of the company.
It can be seen that the more stakeholders there are in a business, the more people should be consulted. A competent attorney or law firm can help guide you through the intricacies of drafting a good plan which can pave the way for a smooth transition and minimize losses.