Family business succession – what you need to know

Passing a family business onto the next generation is a proud and satisfying achievement. After years of hard work building or maintaining your reputation and traditions, family succession is a highly significant moment – and one that you want to get right.

Alongside the pride, there is inevitably a sense of stress about your legacy and whether every detail of succession planning has been fully considered. In this post, we’ll look at some of the key legal questions to ask yourself before and during a family business handover.

Keeping it in the family

A family business has a family at its core. Your hard work – as well as, perhaps, your parents’ hard work and their parents’ hard work – has led to this monumental occasion and now you want to ensure the handover happens smoothly and efficiently.

To ensure you can pass your business successfully down the generations there are some key legal issues that should be considered including governance, corporate powers of attorney and potentially the use of family trusts.

Good governance

Preserving your business for future generations means ensuring that the values are instilled into your successors. An orderly and structured succession is crucial to setting the tone for this new era.

A family charter can help ensure smooth leadership transitions and build an enduring legacy for future generations. This document can codify essential rules, responsibilities and obligations relating to the ownership and management of the business, ensuring that your family business will uphold the same traditions that have guided your work.

Additionally, a family charter can encompass a far broader scope by making clear the values that will inform your family business’s conduct in the broader community.

Of course, all good family charters should be backed up by bespoke articles of association and a shareholders’ agreement, in the event that the family business is operated through a limited company.

Working out the financial details

The arrangements for a Family Investment Company (FIC) or Trust Funds can be complicated. High Net Worth (HNW) individuals, with diverse and complex assets, can benefit from expert guidance to minimise the impact of any family business decisions on tax and inheritance planning.

It is important to consider inheritance tax (IHT) planning, as well as more immediate tax liabilities linked to any IHT planning, in tandem with good governance. Keeping your business in the family could offer tax advantages, as well as an inheritance you can be proud of.

Corporate Powers of Attorney

Having a corporate and business affairs power of attorney essentially means authorising someone to carry out specific responsibilities on your behalf, in relation to the family business, in the event that you are incapacitated.

In times of uncertainty, a corporate power of attorney acts as a guarantee that your business and business transactions will still be able to progress as normal. This certainty can be invaluable during a succession process, providing a key safety net.

When everything is changing, it can be reassuring to know that your family business will continue doing everything it has always done in the day-to-day operational sense and so ensuring that your business can continue as usual.

Here for your family

One of the most satisfying aspects of passing your business onto the next generation is the knowledge that you are keeping it in the family and providing for your children. We appreciate how important this is to you.

We have worked with some families for generations and understand their business and the values they want to continue. Family succession is the best option for many family businesses, with the company values and inheritance planning all dealt with and a prosperous business handed down the generations.

In some cases, however, it might not be desirable – or possible – to keep the business in the family. In these cases, a range of other options exist from third party sales to management buy-outs. Needless to say, we are always here to support and advise you regardless of the exit plan you settle on.