By Angela Keery, Head of Tax
If the hit Sky Atlantic series Succession is anything to go by, the disintegration of a family dynasty is never off the cards when the time for succession planning comes.
Though entirely dysfunctional and somewhat detached from reality, the issues facing the family of media tycoon Logan Roy will no doubt have sparked some conversations among the many family-run and owner managed businesses in Northern Ireland, which have long been accepted as the heart of our economy.
Over 125,000 family firms operate locally, accounting for over 84% of the private sector in Northern Ireland, according to the latest UK Family Business Sector Report. No matter the family dynamic, therefore, business owners must take time to consider their eventual exit from the firm, whether that be by way of sale, death, or incapacity.
With two or more generations often involved, disputes around how the business operates and the future structure and governance of the company can ignite when least anticipated. This is a situation that runs the risk of becoming a damaging one, yet it is imperative that these decisions are taken in plenty of time.
They must also be included, if appropriate, in the Family Constitution and Shareholders Agreement so that all stakeholders know what will happen as different situations arise.
For the senior generations planning for their departure, the company’s share capital is often their most valuable asset. Though all will be aware that their will should clearly determine who will inherit the business, it is still important to decide, and let others know, the expectations for what should happen when the handover takes place.
If the value of the company depends solely on the owner, there is always the risk that it will not enjoy the same level of success in their absence. With other family members, including children, often relying on the firm for their main source of income, making preparations early is essential to ensuring it can survive, and hopefully thrive, without the current owner.
Another dynamic to consider is the relationship between existing business partners or shareholders and the family members due to one day take over the reins. It takes time and careful consideration to establish whether these individuals can work together to ensure the continued stability and ultimate profitability of the firm.
If wider family members want the option of selling shares to other owners, direction for the price to be paid and timing around payments must be set out. Without this, we have found that a lack of clarity on future sales can lead to bigger, and potentially more damaging problems down the line, especially if other partners or shareholders are family members.
Although it is a sensitive matter, managing the succession of your business is an important part of its lifespan. Family run-businesses are renowned for passing through the generations, and new generations can often bring with them new systems, new culture and new ideas.
There are no easy answers when you have built up your business through decades of hard work, yet the knowledge that suitable plans are in place for both you and your family gives peace of mind to all involved. It is important to find a trusted advisor who will work through these issues with you to maximise the value of your business and ensure a smooth transition when the time does inevitably come.
To discuss your own situation please get in touch with Angela Keery E: firstname.lastname@example.org or Tel: 028 9032 3466.