Successful successions

Chuck Vater, managing shareholder of law firm Tucker Arensburg, says only a small number of closely held businesses are successfully transferred from one generation to the next. Often, the lack of a comprehensive succession plan—or any plan at all—that takes into account the individual characteristics of a business is the reason for problems.

Every family owned business has its distinctive characteristics of ownership, industry type, size, participation of family members, not to mention personalities of the principals involved. So it would follow that no two succession plans will be exactly alike, either.

And, in fact, all plans differ in their details. But Vater points out that all will share some common characteristics. Those include:

  • The commitment of the owners and management of the business to discuss and implement a succession plan.
  • A team of professionals who will help create and support the plan; a clear understanding of the expectations of each of the professionals; and an agreement on the fees involved.
  • A determination of the manner and timing for the transfer of control from one generation to the next.
  • Identification of the retirement and disability needs of the current owners.
  • Identification of the estate planning desires of the current owners.
  • An honest assessment of the leadership and management skills of both family and non-family members currently active in the business.
  • A proper valuation of the business for tax and transfer purposes.
  • Liquidity of the payment of all succession costs, including income, gift and death taxes, debts of owners and estate/trust administration expenses.
  • Appropriately written documents that will carry out the succession plan.