Considerations in Succession Planning for Family Businesses

Many family business owners assume their business will not be successful enough to consider succession planning.  Do not make this mistake.  A recent article on the ABC News website reports that only 12 percent of family businesses survive into the third generation.  Succession planning can increase the odds of your business surviving and can reduce family conflict.

Considerations in Succession Planning for Family BusinessesThere are many issues that will need to be addressed in a succession plan. A qualified attorney can assist you with this.  Some of the more important considerations include:

  • Determining the composition of the board of directors. The board of directors can consist of working family members, non-working family members, outside board members, or a combination. Outside board members can give you a larger perspective of the industry and act as a mediator in the event of family disputes.  However, some owners do not like bringing non-family members into the board room.
  • Determining how many shareholders will be involved in the day-to-day business activities. You will also want to consider how many shareholders will be given executive positions.  Some business owners envision their company being a source of employment for many family members.  Others believe too many voices can lead to dissension and cause delays in decision making.  Determining how your family business will be structured can help preserve relationships as your business grows.
  • Determining how a position will be filled. Will you offer positions according to lineage or qualification?  Will you base the compensation on industry average or another means?  These decisions can be made by the board of directors or through shareholder voting.  A third party evaluation is also an option and can mean less conflict.
  • Determining buy-sell agreements for shareholders. Set parameters of how the stock can be sold, to whom it can be sold, and how the stock will be valued.  This is a particularly difficult subject but also one of the most important aspects.  Buy-sell agreements allow a shareholder to leave with less conflict.

The idea of succession planning can seem overwhelming.  However, if you want your company to survive multiple generations, succession planning is imperative.  Contact an experienced Illinois business attorney today.