Business succession planning – documents and structures

06 October 2022

Compiling and understanding the documents surrounding a succession planning process can be a detailed process – but it doesn’t need to be painful. 

Elizabeth Wood from our business succession planning team looks into the potential documents which may be needed – and the thinking behind them.

Once succession planning decisions have been agreed by all within the business – both individually and collectively – the next stage is to formalise those decisions.

It is likely a suite of documents will be produced to outline the current and future plans for the business depending on a range of different scenarios.

It is entirely understandable and common for owner-managers of business to find this step of the process daunting.

Our approach at this stage will be to demystify the documents, break down the complexities and answer any questions that may arise. The team will always explain matters to the level of detail that suits each particular client.

Each set of documents will be bespoke to that particular set of circumstances. Every business – and every individual involved in them – is unique and we will use our experience to support owner-managers in creating the best solution for each scenario.

Below are examples of the most common documents which will be drawn up in relation to a limited company during the succession planning process.

Articles of Association

This is a public document which is filed at Companies House and contains rules regarding shareholdings and the operation of the company. 

Every limited company has one.  Not every company understands the implications of the rules.  It is the first port of call when disputes arise – and that shouldn’t be the first time a shareholder or director considers them! 

We provide peace of mind that the Articles are aligned to the owners’ plans and requirements.

Shareholders’ agreement

In contrast to the Articles, this is a private document which outlines how the company should be operated and the rights and obligations of shareholders.

Shareholders’ Agreements can contain a huge variety of provisions to reflect the particular circumstances of the business and the individual shareholders.  Typical issues that are often addressed include provisions regarding share transfers, safeguarding for minority positions and appropriate ways to address disputes.

While any such document must work in conjunction with the Articles, the fact that a Shareholders’ Agreement is not on the public record means it is more suitable for any personal or commercially sensitive arrangements.

Cross-option agreement

In some situations, on the death of a key shareholder the preferred outcome is for surviving shareholders to assume ownership and control of the company, with the estate of the deceased receiving a fair value for the business interest.

A cross-option agreement is an effective structure to achieve this objective, with both the continuing shareholders and the estate having the right to call for the sale of the shares at the relevant time.

It is natural for business owners to want to protect both their family and the business in the event of their death. Careful consideration needs to be given to the price or valuation mechanism and methods of funding the arrangement  – including insurance policies where available.

Family charter

Family businesses bring their own unique dynamic and relationships and, in contrast, the intention here may be to retain the ownership and management of the business for future generations.

A Family Charter may include legally binding aspects, but more importantly provides a framework of long-term principles regarding the relationship between the family and the business.

It can be an effective way of defining roles and expectations and ensure relations remain harmonious within the company and the wider family.

We also work with businesses in many other structures including partnerships, limited liability partnerships and unincorporated associations. 

There will be documents specific to those organisations, but the same themes will be relevant.  What is most important is that any suite of documents reflects both personal and commercial needs. 

In each case we help owner-managers ensure the arrangements support their plans for the future of the business, whatever those plans might look like. 

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