For many family businesses and owner-managed companies, succession is not simply a legal or tax exercise. It is a process of preparing the next generation to assume responsibility for ownership, management and decision-making.
It is common for succession planning to focus on legal mechanisms such as how shares will pass, how tax will be managed and how control will be structured. However, even the most carefully drafted arrangements will be of limited value if successors are not equipped to step into leadership roles. Planning early and taking a structured approach can help ensure continuity and preserve the long-term value of the business.
Identifying future leaders
Not all family members will wish to be involved in the business, and not all will be suited to leadership roles.
Identifying potential successors should involve an objective assessment of various qualities, including the individual’s skills and experience, their commitment to the business, their ability to work with others, and their long-term ambitions.
In some cases, there may be a clear candidate. In others, there may be multiple individuals with different strengths, or no obvious successor within the family. Where appropriate, businesses may decide to appoint an external manager while retaining family ownership.
Developing skills and experience
Once potential successors have been identified, the focus shifts to development. It is important to consider where the individual may have skills gaps and training needs, and then a plan can be developed. This may include formal training in areas such as finance, governance and leadership, or mentoring from the existing directors or managers. Having a structured development plan helps the successor to understand the company’s expectations of them in this role.
Gradual transition of responsibility
A phased approach to succession can be particularly effective. Each business will have different needs, but this may involve gradually increasing the individual’s involvement in decision-making and transitioning into director roles over time. Transferring shares in stages is also a good option when considering the governance of the company.
A gradual transition allows knowledge and experience to be passed on and confidence to be built on both sides. It can take time to build up relationships with key stakeholders, too. Gradually introducing the successor into the role reduces the risk of disruption to the day-to-day running of the business.
Governance and accountability
As the next generation becomes more involved, governance structures often need to evolve.
This may include:
formalising the role of the board;
clearly defining responsibilities and decision-making authority;
introducing independent directors or advisers;
updating the Articles of Association and any shareholders’ agreement.
Clear governance helps ensure that decisions are made effectively and that roles are understood. It can also provide reassurance to non-family stakeholders, such as lenders or investors.
Managing family dynamics
Succession within a family business can give rise to sensitive issues, particularly where expectations differ. Common challenges include perceived inequality between family members, differing views on the direction of the business and balancing family relationships with commercial decision-making.
Addressing these issues requires open and transparent communication and a willingness to separate personal and business considerations where necessary. In some cases, it may be helpful to involve legal specialists or external advisers to provide an objective perspective. Having a Family Charter may be helpful.
Aligning ownership and control
As discussed in earlier articles in this series, ownership and control do not always need to sit with the same individuals.
In practice, this may involve:
allocating voting control to those actively involved in the business;
providing economic benefits to a wider group of family members;
using trust structures to manage ownership over time.
These arrangements can help balance fairness with the need for effective decision-making.
Integrating legal and tax planning
Preparing the next generation should be aligned with the broader legal and tax framework. This includes ensuring that wills reflect the intended succession plan (including the use of lifetime gifts or trusts), planning for inheritance tax and Business Property Relief (BPR) where applicable, and reviewing any cross-option agreements or other share transfer arrangements.
A long-term investment
Preparing the next generation is not a one-off exercise. It is an ongoing process that requires time, planning and commitment.
When approached effectively, it can:
strengthen the long-term resilience of the business;
support continuity of leadership;
provide clarity for all involved.
For family businesses in particular, this is an investment in both the business and the family’s future.
Planning ahead
Succession is inevitable, but a successful transition is not.
By taking a proactive and structured approach to preparing the next generation, business owners can help ensure that the business continues to thrive under new leadership.
If you would like to discuss succession planning for the next generation, please contact Laurence Twiselton in BPE’s Corporate team or Philip Allen in the Private Wealth team for a coordinated approach.
