It can feel overwhelming to a business owner, the thought of embarking on a plan for succession/transition of their business. Particularly when the transition plan involves some or all their children. Commonly, the owner has a vision for the endpoint but does not have the map to get there. Navigation is the role of the owner’s advisor team, comprised of a lawyer, accountant and often including an insurance agent, banker and/or investment/financial advisor. Each member of the advisor team brings essential perspective and expertise to the process; however, all team members will agree – that a fully considered and well-drafted Shareholders’ Agreement is essential to the success of the transition plan.
A Shareholders’ Agreement is an agreement that will be signed by the owner, other family members involved in the business and possibly other members of the family. It will set-down the legal roadmap that will guide the family through the transition of ownership and control of the business by the current generation to the next generation of owner(s). The Shareholders’ Agreement will dove-tail with the owner’s estate planning documents to ensure a cohesive plan operating during the owner’s lifetime and on death.
The lawyer is the owner’s quarterback when it comes to development of the Shareholders’ Agreement. When working with my family business clients, I refer to the Shareholders’ Agreement as the “Family Charter” or the “Family Constitution”. It is the foundational document that, in order to be an effective tool for the family, demands time and much discussion, including exploration of the current and future roles of the family members, compensation structures for all working family members, the retirement needs of the business owner, the potential impact of a death, divorce, resignation or dispute among the parties, debt repayment, and tax considerations. It often will involve the engagement of legal counsel for other family members to ensure their interests are also properly considered.
The role of the lawyer and the other members of the advisor team is to guide and facilitate the family discussions using their collective experience to flush out the family’s often yet to be verbalized assumptions and expectations, identify the family’s operational principals, present options and recommendations for approach and, finally, formalize the agreed plan. While there are customary tools used within a Shareholders’ Agreement, each family’s experiences, objectives, dynamics and ultimate goals are unique to the family and, as such, the Shareholders’ Agreement should, at the finish line, reflect the unique aspects of the family and its business. There is lots of opportunity to be creative and work “outside the box” when developing the Shareholders’ Agreement for the business and the family.
Family business transition planning involves many different steps and documents, but key among them is the Shareholders’ Agreement. Assemble an experienced advisor team to support you and give yourself and your business ample time to work through the process and develop the plan.
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This WARDS LAWYERS PC publication is for general information only. It is not legal advice, nor is it intended to be. Specific or more information may be necessary before advice could be provided for your particular circumstances.
