Business succession planning is about an organization’s leadership thinking ahead to be sure that the business has the talent and experience in reserve that it may need to replace a key role, sometimes on short notice.
After all, people change jobs frequently in the modern economy. Even if a key employee or officer intends to stay with their company, eventually, they will want to retire or take on less responsibility.
Sadly, illnesses, accidents and other unexpected life events can take key personnel away from work, sometimes with little or no warning.
Pennsylvania companies of all sizes need to go through formal succession planning. Not doing so can lead to talent or knowledge gaps that can seriously hurt a business.
Succession planning is especially important for a closely held or family businesses. If a family business does not have a clear successor, or if the successor lacks the right training and experience, then a family business may not be able to continue operating.
What does business succession planning have to do with estate planning?
To some extent, business succession planning will involve personal and financial decisions. A small or mid-sized organization will first want to identify a successor to a key role and start the process of training that person early.
However, a business owner who is naming their successor may need to make some important updates to their estate planning documents or to their planned gifting.
A hand-picked successor will, after all, need clear legal authority to run the business. The transfer of power to a successor could involve giving or bequeathing an interest in a family business.
There are other legal steps an organization might take to transfer power to successors. While selling a business to a third party is another option, this too requires some important legal work.
Aside from transferring power, other legal and tax considerations may be in play depending on a person’s situation and the overall health of their business.
A business owner should make sure they have a quality business succession plan and should be sure they understand their legal options when creating one.