Succession Planning is as important as a will is to your company and may be literally the last thing you think about. Your will or your trust determines how your home and other assets will be distributed and makes certain that probate will not keep your heirs in limbo without access to finances with which to pay mortgages and daily expenses on your behalf. So what is this type of estate planning?
Planning for the Takeover
That is what it is all about. When a leader dies, retires or leaves the company, someone has to step in quickly to take over his responsibilities. This is true in governments as well as business. Monarchies usually determine their new leaders through inheritance. The United States has a plan that includes succession from the Vice President, Speaker of the House, President of the Senate, Secretary of State and so on. The important thing is that there is a protocol that takes effect the minute there is a vacancy for whatever reason. Businesses need this continuity as well.
If you are the only owner of a business, you can choose a family member or a trusted employee to replace you if you are incapacitated or if you die. It is important not to put off the choice, however, because you will need to train the person who assumes your responsibilities. You also need to make certain that he has access to all business accounts and to funds to carry the company through the transition. Experts recommend keeping a “Winding Up Account” of at least enough money to pay three months of expenses. You should keep in a secure location a list of passwords to all digital information like customer lists and supply sources, social media and other accounts. It is also vital to arrange a formal power of attorney that will activate upon your leaving. You can draft a letter stating your wishes for how the company will be run but your successor is not legally bound to follow it.
Corporations owned by Multiple People
Succession in this instance is a bit harder to determine. First, whether you are the chief officer or the chairman of the board, you are responsible to others. That means there should be a consensus among all people with a stake in the business about a chain of succession. A team or committee should compile a “profile” of the person best suited for the position of leadership and make it a part of the permanent company documents, that way your company will not have to repeat the process each time someone leaves. The document should be updated as the company grows or changes.
The next logical step is to look at the candidates that are already employed by the corporation. If no one is found who is acceptable to the board, then your business may have to look outside the organization.
Once the successor is chosen, the process looks a lot like the one for sole proprietors. The candidate must be trained. In “business-speak” this is called on-boarding. This is not a process that can happen overnight or in a month or two. It requires thoughtful planning and execution. No one will be ready to take over at the moment of crisis. Powers of Attorney and other formal documents transferring authority and denoting responsibility must be in place too.
Whether a business is small or an international corporation, the choice of who will “take the reins” in a time of crisis is important. So, too, is making certain that the candidate has everything he needs to succeed in the transition. Many of the documents in Succession Planning are formal and legally binding and so it is best to have the assistance of legal counsel just as you would in drafting your will.