When we talk to business owners about their plans around succession, the responses more often than not focus on similar themes; that they haven’t or can’t even face thinking about it; that they’ll sell to a major customer or competitor one day but for now, thank you, they’ll continue to enjoy the income and lifestyle until they do; that they have a sale lined up to the management team (who may or may not be aware of this) or that there really is no need to do so as they have an eager family member waiting in the wings to whom they will hand over the business.
All sorted then.
There are times when the conversation goes that step further to touch on the sensitive issues of what would happen, in the context of the shareholdings in the company, if one of the shareholders were to pass away prematurely or were to divorce? What if they were forced to step down through ill health? What is one of their beneficiaries was to divorce and then go on to remarry? Or their children enter relationships that they may not entirely approve of? All dangerous waters indeed, so it really is no wonder these are areas that some would rather steer well away from.
These are all undoubtedly difficult and awkward scenarios to consider, let alone to openly discuss amongst family and to then put a plan in place for – and that is entirely understandable. But the consequences of not doing so can arrive unexpectedly and when they come, can be unpalatable.
From a personal perspective, having an up-to-date will is always sound and sensible advice to follow. Consider trust structures as a way of ring-fencing shareholdings, although bear in mind that there may be a subsequent compromise between balancing control and tax efficiencies if the business is sold, as Entrepreneurs Relief may not then be available.
The Articles of Association are rarely given the attention they deserve, and yet their provisions can be crucial should a shareholder be forced to sell shares, due to, for instance, ill health. They can also be used to restrict who has the right to purchase shares from a shareholder in the event they want or are forced to sell (Pre-emption rights). Similarly, provision could also be included around the mechanism for share valuations for an exiting party – will any outgoing shareholder benefit from a valuation that reflects an element of good will or will they be allowed to insist on an anti-embarrassment clause upon exit, to ensure that they benefit from any sale of the company that may occur soon after their departure? This is where having that trusted third party, with whom you can discuss issues objectively to help you explore these contentious areas can prove to be invaluable.
So take a deep breath and reflect on the years of graft that you (and maybe even the generations that came before you) have put into your business; this could be the catalyst you need to put plans in place, as far as you can, to make sure the fruits of your labour go to those you think rightly deserve them – now and in the future.View all insights