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Business Succession Planning from the Perspective of a Commercial Lawyer

A Commercial Lawyer sees all sorts of businesses and deal with the effects of human nature in business on a daily basis. They document business ventures, estate and succession plans and we are often brought in to clean up the mess when things don’t go smoothly.
Planned Succession

Planning assumes there is time to plan. Often the business is closely tied to the founder who has a significant bank of knowledge which should be documented and communicated during the planning and handover process.
There are many issues to consider when preparing a succession plan:
– Will the owner leave completely or will the owner have some future involvement with the business?
– Who is to be the successor? This doesn’t matter if the business is being sold at arm’s length
– How will the owner conduct discussions with the preferred successor? Is there a backup successor?
– Will the owner appoint an independent person to lead the discussions and to chair meetings?

– Owners should set a realistic timeframe for planning, documenting, mentoring, transition, handover
– What are the risks to the business that may arise?
– How will the organisation structure change and how will other people’s jobs change as a result?
– What training is required for the successor and other people in the organisation
– What documents should be drawn up?
– What advisors will be involved – accountants, lawyers, spouse?

Put something on paper! It’s a start!

Unplanned Succession
This is a critical issue in smaller businesses. Who will turn the lights on in the morning after unexpected death or incapacity?
Whilst the ownership of the business may be covered in the will or shareholders agreement, an operations manual or statement of wishes may assist those who will be running the business.
Unplanned succession can still involve elements of a succession plan, for example, mentoring a preferred successor, putting a shareholders agreement in place where there is more than one owner and having a will and/or power of attorney.

Family Businesses
These have their unique planning challenges including dealing with the expectations of family members who may not be the best people for the business. Owners should:
• Aim for family harmony – do the children want to be involved in the business?
• Aim to instil business skills and experience in those family members that are interested to hopefully build wealth across generations
• Assess the financial capacity of the business to support these changes
• Encourage communication between family members, don’t assume
• Formalise the process with a timetable and adequate resources

Takeaway
This is very much an area of long term focus and vision, implementation and common sense rather than the application of strict legal principles. The early involvement of key people (whether family or not) and trusted advisers is essential to effective business succession planning.

More Information
For practical friendly advice on business succession planning from an experienced commercial lawyer, please call Matthews Folbigg Lawyers in Parramatta on 9635 7966 to speak with Phillip Brophy.