It is important to create a predictable and planned leadership transition, or succession plan, to safeguard your organization against unplanned or unexpected changes in leadership. This is vital for the success of business owners’ and executives’ positions, which are central elements to an organization’s success. While choosing the right successor is important to this process, there is more to succession than the individual(s) who will continue running your business. The following legal considerations should be taken into account when creating a succession plan that meets the needs of your company.
Registration Transfers. Most large companies are registered as a corporate entity, but in some instances, they are registered in the name of an individual. Any time that individual is replaced, these registrations will need to be updated. A few examples are:
· Business name
· Tax Identification Number
· Domain name
· Local licenses/permits
Change of Business Structure. It will be rare that your business structure will change due to succession, but it is something else to be considered. Does your partner not want equal partnership? Would they rather hold the position but allow the other partner to be the sole trader? If so, the partnership will have to be dissolved and the business re-registered as a sole proprietorship.
Other Transfers. Much like registration transfers, it will be rare that other transfers will be necessary upon succession, but this is another factor to be considered. Is the office lease in a single name rather than the corporate entity? What about memberships and associations that the company is involved in? Their records will need to be updated to reflect the change.
Contracts/Legal Documents. Many companies have partnership or employment contracts that outline job responsibilities or timelines for contracts. These will need to be taken into account when you create your succession plan, as they already outline some of the changes that will occur when key personnel leave, are reassigned, or need to be replaced/succeeded. Be sure to include these documents for review when it is time to write your succession plan.
Buy-Sell Agreement. Many partners, owners, or executives have created informal verbal agreements as to what would happen if a tragic event were to occur. This frequently involves the buying or selling of shares or of the entire company in order to allow the company to remain an asset rather than become a liability. Turn this informal verbal agreement into a formal, written agreement and include it with your succession plan. Even if the succession plan is unable to be completed and approved, one important piece of documentation exists as a starting point to make the process easier.
Will/Testament. A will or testament is the personal version of a succession plan. It is common to find high-ranking corporate individuals with very detailed wills explaining how they want their assets and liabilities handled in the event of an untimely death. Yet these same individuals cannot get their fellow business owners and executives to sit down and plan for the company’s future. Use your own will or testament experience to help the company realize that planning is necessary, no matter how time-consuming or emotionally jarring.
Putting safeguards in place to protect the structure of your business or organization is an integral part of maintaining the product, company and lifestyle you have cultivated over the years. Therefore, it is crucial to plan for every contingency, including legalities that may arise with succession.