Achieving a Successful Business Succession: An Approach That Is As Technical As It Is Personal

“Shareholders agreement,” “succession planning,” and “governance” are terms that all business owners will encounter as their business evolves and grows. In the context of a business succession, each of those terms is also relevant.

In addition to technical skills, the human personalised approach of the professionals advising an entrepreneur for the succession planning of his business are of utmost importance. 

Planning the succession of a business extends far beyond the boundaries of the business itself: it involves understanding the entrepreneur’s values, wishes and objectives as a whole, while also considering his retirement plan and vision of the future. 

Typically, clients have the following objectives: “I want my company to remain prosperous. I want my succession plan to be successful, and I want to take care of my family.” 

Each succession plan is unique. The 360˚ approach we recommend consists in assisting entrepreneurs in their reflection on their values and objectives from the start of the succession process, in view of ultimately implementing a customized plan taking into account their specific situation, both on a personal and economic level, as well as the human considerations that can arise from their retirement. 

The Entrepreneur’s Family Dynamic: Not to Be Neglected

Concretely, professionals must understand an entrepreneur’s family dynamic to help him reach his objectives. Will all family members be involved in the family business after the entrepreneur’s retirement? Have certain candidates already been identified, trained, and/or prepared for the next steps? Does the entrepreneur want the ownership of his business to remain exclusively in the family, or is the owner open to involving third parties (including, for example, their children’s spouses)? Will that apply to the business’ management in the future? What is the entrepreneur’s vision for his family, after his retirement? Should he contemplate a gradual transition? Should a family council be constituted? Should the decisions be made by a formal board of directors with or without third parties? Who should be protected in the event of a deadlock or unforeseen circumstance? Will his spouse be able to maintain a similar standard of living in the case of such unforeseen circumstances? If certain children are not involved in the business, will the succession plan disrupt the family dynamic or cause an economic imbalance between his children (and future generations)? Has the entrepreneur subscribed to a life insurance policy that is sufficient to cover taxes payable upon his death, and if not, who will bear such tax burden? 

Reflecting the Entrepreneur’s Reality in the Transfer of his Business

To answer these questions and plan the succession accordingly, the business owner should work with a team of advisors (i.e., notaries, lawyers, accountants, financial advisors, insurers and/or bankers) who will work together to implement a logical structure and prepare documents that are coherent with the entrepreneur’s reality, family dynamic, and his business on a legal, tax, practical and human level. While the coherence between the various corporate and family documents is important, the understanding of such documents by all individuals involved is crucial, all in accordance with determined values and objectives. In planning a business succession, nothing must be left to chance. 

In addition to corporate agreements and resolutions, these family-related considerations must be reflected in various important documents such as the shareholders’ agreement. The shareholders’ agreement will notably govern the ownership and transfer of the shares in view of maintaining ownership within the family after the entrepreneur’s retirement. It will provide a clear decision-making process for the future. A voting agreement can also be prepared to ensure compliance with pre-established guiding principles. Finally, the entrepreneur’s last Will and Protection Mandate will ensure that his spouse, children, and loved ones will be protected, resulting in a harmonious transition, while respecting the owner’s objectives for the enduring success of his business.

To learn more about the human and technical aspects associated with business transfers and successions, please contact Natasha Girouard, Pascale Villani or Geneviève Vigneault.