Elliott is the co-founder of a successful dental group in Cary, North Carolina. He has been a member of the corporate board of directors for over a decade and plans to retire in the next ten years. Suddenly, one of the co-founders of his practice falls ill and must unexpectedly resign from her position as Director of Operations, leaving a key vacancy in the company. Elliott and his team are unsure of how to fill the role and the board is scrambling to oversee her former responsibilities. They struggle to find an adequate replacement for months, causing severe disruptions to the operations of his business, so they get in touch with a Cary succession planning attorney.
The NC Planning team of experienced Cary succession planning attorneys works with business owners and leaders to develop a tailored succession plan that works for their company. Through strategic planning services, we work to plan for the longevity of your business in the event of unexpected departures or other unanticipated circumstances within your company. To learn more about how we can help, schedule your initial consultation or call our Cary office at (919) 900-4720.
What Is Succession Planning?
Succession planning refers to the strategy utilized by a business to pass down leadership, management, and/or ownership of the company. It involves pinpointing important positions in a business and establishing action plans for new individuals to seamlessly assume these positions in the event of departure from the company, retirement, or even death. Effective succession planning is more than just a written document detailing the transfer of leadership. Rather, it involves developing and training existing employees to provide them with the skills to lead the business successfully.
When done effectively, succession planning sets the business and its owner(s) up for a seamless transition to the successor owner(s) by:
- Identifying critical roles in the company and highlighting prospective future vacancies
- Determining the competencies and skills needed for business continuity
- Developing the skill sets of employees to ensure that future business needs are met
As a facet of both estate planning and business law, succession planning is imperative for business owners who wish to hand down their company at their retirement or unexpected departure. According to North Carolina intestate laws (Chapter 29 of the General Statutes), a person’s business is succeeded based on NC intestate laws unless instructions are provided for through estate planning documents or proper business structure. This means that without a succession plan in place, a company will often be handed down based on intestate laws without regard to a decedent’s intention or other ownership interest. Oftentimes the heir is a spouse or child, depending on the familial structure. This can easily cause issues regarding the management of the business, as the heir may be entirely ill-equipped to assume leadership of the company.
What Is the Purpose of Succession Planning?
The purpose of succession planning is to ensure that proper leadership is always available and accounted for within your business. Should change happen quickly and unexpectedly, succession planning mitigates the likelihood of negative outcomes. The primary benefits of creating a succession plan for your business include:
- Safeguarding the company: In the same way that insurance is purchased to protect a company from natural disasters or fires, succession planning is utilized to protect a company from failing due to unexpected changes in leadership. Losing key stakeholders can leave the company vulnerable. Succession planning safeguards against that vulnerability.
- Creating a structure for training and employee development. Oftentimes, a business does not seriously consider or review their professional development procedures until it becomes necessary to fill gaps in leadership. Succession planning provides an opportunity for a company to re-evaluate their employee training models and implement new policies that are better suited for the business’s growth. This also indicates to employees that you are ready and willing to invest in their development, increasing morale and work culture.
- Strategic Tax Planning: When proactively planning for the succession of a company, leadership may have the opportunity to select the succession and transition plan from a variety of options which can allow the organization to minimize the tax impact of the transaction overall.
- Maintaining brand identity. It is not uncommon to see a shift in brand identity when new leadership enters the business. In some cases, this can be a positive change. In others, however, this shift in brand identity can impact customers’ trust in the business, undermine your reputation, and result in disjointed marketing and sales strategies. The fundamental values and mission of the company are important and succession planning helps businesses maintain their core brand identity long-term.
- Identifying and understanding ideal future leaders. Succession planning requires the company to identify the roles that are most important to continued success and discern which internal employees possess the skill and ability to take on these roles. This can be a valuable tool for the retention of employees long-term. Alternatively, via succession planning, the company may find a need to seek external talent or personnel.
What Are the Components of an Effective Succession Plan?
An effective succession plan leverages a variety of legal documents and strategies to prepare for unexpected vacancies or planned retirements within your company. A Cary succession planning attorney at NC Planning utilizes a range of strategies when creating a personalized succession plan for clients. Typically, a succession plan takes the form of a written, legally binding agreement.
There is no one-size-fits-all for succession plans and the document(s) can be drafted differently depending on your needs and goals. As is true of any legal document, it is essential to detail exactly what actions should be taken in the event of an unexpected vacancy as well as the intentions of the business owner.
Some of the key components of an effective succession plan may include:
- Dispute resolution clause: this clause helps reduce the likelihood of conflict during the succession process by clearing stating how disagreements and disputes will be handled. In turn, disputes are unlikely to elevate to a serious level. The dispute resolution clause can necessitate mediation in the event of disagreement and/or outline a clear solution to potential pitfalls that may occur during succession.
- Transfer of Ownership Agreement: either a stock purchase or transfer agreement or a membership interest purchase transfer agreement or an asset purchase agreement can be utilized to transition the ownership interest of the company from the original owner to the successor owner.
- Post-transition Employment Agreement: which can memorialize the role and responsibilities of the original owner post-closing of the sale or transfer of the business from the predecessor owner to the successor owner
How to Choose the Best Succession Planning Attorney for Your Cary, NC Business
The effectiveness of your succession plan largely hinges on the attorney you choose to work with through the process. Succession planning is a long-term, continuous process, meaning you will likely be working with your Cary succession planning attorney for a prolonged period of time. As such, it is imperative that your hired legal counsel fully understands your business’s culture and identity as well as your long-term financial goals.
When vetting potential attorneys, ensure that you are able to establish a sense of trust and comfortability with them. You will be discussing your business’s finances as well as your personal goals, sharing key information with them along the way. For this reason, it is important that you enjoy working with them and have confidence in their ability to uphold your interests and help your business achieve your long-term goals.
NC Planning Will Help You Plan for the Road Ahead
Succession planning is an extensive and complicated process, involving key legal documents and agreements. Many business owners and leaders seek legal assistance to ensure that their plan is legally sound and as comprehensive as possible. An experienced attorney will be able to identify critical components related to your succession strategy and provide the guidance necessary to address challenges swiftly and efficiently. To begin the process of succession planning for the future of your business, consider contacting a Cary succession planning attorney at (919) 900-4720 or scheduling a consultation with us today.