Preparing your firm for what lies ahead is a fundamental tool for navigating the financial industry. For this reason, succession planning is an integrated, systematic approach to identifying, developing, and retaining key components of your firm’s continued corporate growth.
Questions often asked as part of the Succession planning process include:
To help steer your business toward the future, our team at Jacko Law Group, PC (“JLG”) can:
The succession planning process is often two things—intricate and highly personal. The team at Jacko Law Group, PC (“JLG”) knows that no firm or business is the same, thus there is no one-size-fits-all approach that can be taken. To ensure that a succession plan takes the right approach demands not only a methodical, logical, and rational approach, but also a personal, strategic touch.
At JLG, we believe that an appropriate succession/exit plan is integral to the continued success of any firm, because it serves as a comprehensive guide for firms to navigate in uncharted waters. In a nutshell, succession plans ask and answer all the pivotal questions—business, personal, financial, legal and tax-related—for the organization firm.
Succession planning is a structured process for determining how a business will continue operating when an owner, executive, or other key person leaves the business. A well-developed plan provides a roadmap for maintaining operations, protecting clients and employees, and preserving the value of the business. Succession planning can address planned events such as retirement or an ownership transition, as well as unexpected events such as death, disability, or the sudden departure of a key executive.
For many businesses, a succession roadmap can provide a useful framework for developing next-generation leadership while allowing sufficient time to address legal, operational, financial, and regulatory considerations. Succession planning should begin well before an owner or key executive intends to leave. Starting early gives the business time to identify and develop potential successors, establish an ownership-transfer strategy, address leadership responsibilities, and prepare for unexpected events.
The right succession strategy depends on the business owner’s objectives, ownership structure, valuation, leadership pipeline, and desired timeline. An internal transition may allow the business to preserve its culture and client relationships while gradually transferring ownership and responsibility to the next generation. An external buyer typically provides a cash event, with greater liquidity and an opportunity to combine forces with another organization. An M&A transaction can provide additional options for growth, continuity, and ownership transition. Evaluating these alternatives early allows owners to compare the financial, legal, operational, and strategic implications before selecting a path.
Documents typically include a succession plan itself, which accounts for short-, medium- and long-term absences of an executive. For long-term and transition, the legal generally include letters of intent, buy-sell agreements, asset purchase agreements, related promissory notes, personal guaranty, restrictive covenant agreements, employee or independent contractor agreements (if the owner will be continuing an affiliation with the successor) and equity, membership interest or related rollover agreements, should equity be used as a payment method by the successor. Other governance document will also need to be updated to reflect approval of the transaction, which will include operating agreement or bylaw amendments. For unexpected departures, documenting the intended process in advance can significantly reduce uncertainty for owners, employees, clients, and beneficiaries.
A succession plan should contemplate more than retirement. Businesses should identify critical responsibilities, determine who can perform them if a key person becomes unavailable, establish who has authority to make decisions, and address whether the absence is temporary or permanent. The plan may also establish procedures for valuing and transferring an owner’s interest or business assets if a permanent departure occurs. For financial services firms, the plan should also consider regulatory, licensing, client service, and fiduciary responsibilities that may be affected by the departure of a key person.
Counsel can help move succession planning from a general business objective to an actionable legal plan. This may include reviewing the company’s corporate structure, identifying potential successors, evaluating internal versus external transition strategies, addressing valuation and ownership-transfer issues, and drafting or reviewing the agreements needed to implement the plan. Counsel can also help coordinate the legal requirements of a planned or unexpected transition with the company’s broader business objectives. For regulated businesses, counsel can address applicable regulatory and licensing considerations as part of the transition.
