The generation game

Kim Klahn, Lodders

Governance, continuity through succession planning, and engaging the next generation of talent, are amongst the biggest challenges facing family, private and owner-managed businesses, believes Kim Klahn, head of law firm Lodders’ corporate and commercial practice in Stratford upon Avon.

Putting in place the right governance documents can aide relationships, particularly with investors.

Comprehensive governance and future planning documents will ensure all parties understand their roles and drive the business forward.

Using shareholders agreements and joint venture agreements, for example, will help, whilst discussions and planning around governance can also garner consensus about overall understanding of where the business wants to get to and how the individuals involved can support it.

A frequent challenge for family businesses is governance and who within the business has the authority to make certain decisions, and the chosen business structure option – whether general partnership, limited liability, or limited company status – presents different operational advantages and risks.

Thinking about handing-on the business as part of a succession plan is key and should include considerations for the business itself, such as scaling-up ahead of passing it on to the next generation or managers/owners, or selling or passing it on to the current management team.

Having a partnership, LLP or shareholder agreement is a private document between the businesses’ main parties that records the terms of their relationship and how they will operate the business, and certainly helps with succession planning.

This important decision should represent the foundations of a ‘Family Business Action Plan’, which documents the shared vision and values of the family and its approach to owning and running the family business.

The plan should include relevant and useful common provisions, such as the nature of the business, long-term goals, detail persons obligations and duties, the procedure if decisions can’t be agreed on, and what happens on retirement, death, or for individuals who simply want ‘out’ of the business.

Talent and skills

Talent and skills are a significant challenge for all West Midlands businesses, arguably one of the biggest, and much of the governance and succession planning relies on having the right talent in place.

To help, owners need to consider giving control to employees and partners, as well as providing attractive reward and incentive packages and an inclusive culture. The individuals with a vested interest in the business and its future sustainability and development are of course important and will tend to give the best performances if these types of incentives are available.

Understandably, there does tend to be nervousness amongst some owners / founders about giving equity away. However, there are ways to incentivise senior employees and directors, and one which has been popular over recent years is growth shares, which allow their holders to benefit from growth in the value of a company.

For more information or advice please contact Kim Klahn, email: kim.klahn@lodders.co.uk Tel: 01789 206154, visit: www.lodders.co.uk.

Lodders’ team of corporate and commercial solicitors offers accurate, focused and solution-based legal advice to a wide range of clients, from long-established owner-managed businesses, family businesses, and SMEs, through to charities and not for profit organisations. Kim Klahn specialises in advising on all company and commercial law matters and is a specialist in non-contentious employment law.

Note: The opinions and views in this article are for information only and do not constitute legal advice.

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