Succession of a family-owned business is ultimately comprised of three elements – leadership, governance, and ownership. In order to ensure a smooth transition and continued success, your heirs should have knowledge in each of these areas. According to the Family Firm Institute, a research firm based out of Boston, Massachusetts, less than one-third of family-owned businesses are still operating by the second generation, and only one-tenth lasts to the third generation – the reasons for which are largely related to ignoring leadership and governance training and mentorship.
Deciding which of your heirs will take over which parts of the family business and preparing them for their roles is imperative. For example, one child may only be a shareholder of the family business, whereas another is, in addition to being a shareholder, also involved in the leadership and governance of the company. Courses may be offered in each of these areas and will provide practical knowledge, but learning on the ground also provides invaluable experience.
A family wealth coach can be incredibly helpful in determining how much education your children will need in order to adequately succeed you in managing the family wealth. In addition, regular strategic planning meetings that include both family members and key advisors should be held so that the lines of communication are kept open and you can identify where your heirs may need a bit more education or training in order to effectively take your place.
Open communication is integral to your succession plan. Your heirs should know what your plan is and your expectations of them. This will also help you identify which heirs may be better suited to, or may prefer, certain roles in the family business or in managing investments. It’s important to discuss strategy for execution with them that involves identifying which educational and training pursuits would be beneficial for them in building and preserving the family legacy into the future and across generations.
Invitation for Discussion:
If you would like to discuss this article in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Tax group at Nerland Lindsey LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.
Also posted at AdvocateDaily.com.