Successful succession strategies have several key considerations in common:
At the forefront is protection against estate and inheritance taxes, and the possibility that some or all of your company has to be sold to satisfy such liabilities. Korean tech giant Samsung provides a cautionary tale in this regard: its former chairman’s family was forced to sell almost $2 billion worth of shares to pay death duties.1 Other creditors can also crop up at an inopportune time, putting your business legacy and even family assets at risk in the absence of effective forward planning as to who pays which debts when, and with what capital.
Ensuring an equitable division of both benefits and burdens among your family is also vital. Not all inheritances will look the same, and in some jurisdictions forced heirship laws may dictate to an extent how your estate is split up. Nevertheless, clearly identifying roles and responsibilities – and explaining how differences are fairly justified – can be key to avoiding family discord.
Trusts and life insurance are wealth planning tools that entrepreneurs should consider putting in place. In addition to safeguarding functions, life insurance can provide essential liquidity for beneficiaries who wish to monetize their shares and for the successors you want to carry on running your company free from onerous operational or ownership constraints.
Inside your family or out, whomever you choose to take over the helm needs to be qualified to do so – and remember that ownership and management don’t necessarily go hand in hand. You should anticipate any potential control issues well in advance, particularly if your business is structured as a partnership.
Central to any smooth transition, however, is the question of when and how to reduce your direct involvement. Loss of a key figure or figures can have an impact on company morale, performance, and goodwill, and may necessitate an appropriate injection of capital. But bear in mind that stepping on your successors’ toes could do more harm than good.