Quite often, in family businesses, the importance of careful planning for the passing of the control and ownership of a family business does not get the attention that it merits. In terms of planning, succession is not regarded as a business issue - indeed succession can often be regarded as a nonbusiness issue to be addressed by the owner entrepreneur at some point in the future "when the time is right". In the current economic environment when most forms of property are at their lowest valuation in decades the time may just be right for optimum succession planning.

Owner entrepreneurs should appreciate that a proper succession plan, addressing legal and tax estate issues, can save them and their dependents money as well as ensuring a smooth and planned transition of their business to the next generation. Indeed, a properly delivered plan can ensure the preservation of family relationships after the owner entrepreneur has exited from the business, rather than the confusion and debate that might otherwise prevail. Taking on appropriate professional advice for each step of the process is crucial.

Planning for succession can be summarised as follows:

1. Plan to exit in the most financially beneficial and tax efficient manner both for the owner entrepreneur and the business.

2. Ensure that the business handover has been carefully planned.

3. Make sure that all legal aspects of the succession have been addressed.

Exiting the business

When passing on a business to the next generation the tax implications especially when it comes to Capital Acquisitions Tax and Capital Gains Tax require careful consideration. Both CAT and CGT can arise on the same transaction.

However advantageous tax reliefs are available in the form of CGT retirement relief and CAT business relief that can minimise both taxes. Maximising pension opportunities in the years leading to exit or retirement are a further consideration in planning to exit the family business.

Planning ahead, sometimes many years ahead, is essential to ensure the best financial exit both for the owner entrepreneur and the family members taking on the business.

Planning the business handover

Choosing your successor is a long and intensive process and one that should be approached in a structured and impartial manner. Options include choosing from existing employees or family members or recruiting from outside. With either option it is advisable to ensure objectivity by involving a third party advisor or trusted business colleague in the selection process. Once a successor has been identified a timetable for the transfer of the reins and the retirement of the owner entrepreneur should be agreed.

Legal aspects of succession

Making a Will is the most basic form of succession planning. However there may be tax advantages in arranging for transfer of assets to dependents prior to death. Equally taking into consideration the requirements of minor dependents or family members with special needs and providing for them in a Will is an important step.

A properly executed Contract of Employment detailing entitlements, options, remuneration etc, for whomever will succeed the owner entrepreneur will ensure that the planned structure for the business going into the future is bedded down.

Where there is a transfer of share ownership as part of a succession plan a properly executed legal agreement, to meet the needs and wishes of the owner entrepreneur, can be a crucial part of the process.

The development and implementation of a succession plan is a very important part of long term business planning. It can be a time consuming project that requires much consideration, professional guidance and advice, and it should encompass all aspects of the business.