Ask almost any lawyer for one piece of advice that they’d give business owners, and they’d advise them to consult the specialists as early as possible before potential issues become real ones.

Take one key area of commercial and corporate law, business succession planning. Most business owners don’t square up to the issue until it’s staring them in the face.

Lynsey Henderson is an experienced corporate and commercial solicitor at Belfast firm MKB Law and a specialist in the legal aspects of succession planning for all SME’s and larger businesses.

“Locally owned businesses make up the vast majority of our client list, whether it be owner-managed or the traditional family business” says Lynsey. “Our specialist team has a wealth of experience across every area of corporate and commercial law, including succession planning to help maximise returns to shareholders and preserve the legacy of our clients’ businesses”.

“Succession planning is all about thinking ahead and it is something that really should be thought about as early as possible. Ideally, succession should form part of the constitution of a business when it is being established, but that’s in the best possible world. More often than not, it’s not the case.

“But even if the question of succession isn’t built into the foundations of a business, the pandemic has taught us that contingency planning is key, and an element of proper planning can prevent a multitude of potential problems from arising further down the line. Having a well-drafted shareholder agreement in place, for instance, is crucial where the process for share transfers and valuation methods can be clearly outlined.”

“A key element of succession planning is shareholder exit. We have assisted many successful business owners in achieving a manged and profitable exit from their business from management buy outs (MBOs) through to passing on the business to the next generation or a sale to a third party”.

Lynsey Henderson offers a number of pieces of key advice to owner managers. One of the most fundamental – outside of family businesses – is to identify key employees and leaders at an early stage.

“If you’re starting to plan an exit, you can help maximise your return by identifying early on who are the employees and managers most likely to be able to take the business forward in your absence and fill critical roles within your business.”

Those employees can be incentivised through a host of methods, she adds, either informally through salary and/or benefits or more formally. One of the most popular methods of keeping key employees engaged are Long Term Incentive Plans (or LTIPs) that reward employees for reaching specific goals that increase the value of the business, or Enterprise Management Incentives (EMIs) which are share option schemes that allow businesses to give options to employees in the most tax advantageous manner.

Growth Shares are another possible route. These are a special class of shares which allow employees to contribute to and participate in the value of a company from and above a set target.

“So, it’s not just a case of giving key employees more money to encourage them to stay with you. Putting the right kind of scheme in place can incentivise your people but benefit the business as a whole as well.”

Business owners should also consider keyman insurance, cover for key employees in the business whose day-to-day involvement is key to its success. Policies are widely available from commercial insurance brokers and the main insurance firms to cover any of life’s unexpected events and reduce any impact this might have on the value of the business.

Lynsey also advises business owners to consider introducing cross-option agreements. These are a simple contract between shareholders giving the remaining shareholders or company an option to buy back the shares of the person stepping out of the business for whatever reason.

“A key consideration for business owners when considering succession is that of taxation. We work closely and collaboratively with our clients’ accountants and other professional advisors in relation to financial and investment planning to help them work towards succession in the most tax efficient ways possible,” Lynsey says. “A lot of the work we do on succession planning is aimed at making it as tax efficient, even tax advantageous, as possible.

“There are unique challenges when it comes to family businesses,” she adds. “We have seen instances where a family constitution can work well which is generally a statement of general principles which outlines the key values and vision of the business and the family’s commitment to them, in addition to this a robust shareholder agreement is absolutely key.”