Legal clarity is key to business planning and succession

It is said there are now more than 3 million family businesses in Britain, so why is it that nearly two thirds of family businesses fail to successfully pass to the next generation?

There are three reasons in particular for this: Firstly, failure by the business owner to plan for potential estate tax liability on death. Secondly, the inability of family members or employees to manage and operate the business without the leadership of the original owner. Thirdly, ownership related conflict.

By seeking sound legal advice in respect of proper estate and business planning from the outset, however, the business will be more likely to succeed and less likely to become a burden to the next generation.

Clarity when setting up a business is the first key and this can be achieved by putting into place a legal infrastructure that covers all bases, including a shareholders' agreement and service contracts for all family members that details their roles and responsibilities.

Once the business is set up it, irrespective of whether you intend it to pass down within the family or be sold upon your death, it is never too soon to think about succession planning to avoid business, legal and tax problems in the future.

Whilst no two family businesses are ever the same, every single family business has three elements in common: the family, the business and the owners. Changes to any of these elements will inevitably impact on the other two, so good succession planning requires awareness of the interaction between them.

A good commercial lawyer can help you make agreements that will, when the time comes, define transferability, provide liquidity and fix the value of your family business for estate tax purposes. Just as it was when the business started up, clarity is the key to succession - and sound legal advice will achieve that.


Robert Williams

Robert Williams

Partner and Complaints Handler

Partner and Head of the Civil Litigation, Personal Injury and Dispute Resolution team in Wrexham