Introduction
Being an entrepreneur involves dedicating time, emotions, and resources to building a sustainable business that reflects one's vision and hard work. Even for sole proprietors, their business is not just a cash cow but a personal legacy they hope can outlive them, especially if they have beneficiaries.
Many entrepreneurs do want their businesses to survive their demise, yet the aspect of proper succession planning is often overlooked as small-scale entrepreneurs often assume that succession planning is strictly reserved for wealthy elites or large corporations. Without a structured plan, a business that took years to build can disappear in a short time- especially after the demise of the founder. Entrepreneurs must, therefore, take proactive steps to safeguard their legacy and ensure that their businesses thrive beyond their lifetime.
This article seeks to recast succession planning not just as a tool for wealth distribution but as an instrument for legacy preservation, business continuity, and asset protection.
Why Make Succession Planning a Priority as a Nigerian Entrepreneur
There are several compelling reasons why entrepreneurs should consider making estate planning a priority. Some of these reasons are stated below.
Business Continuity & Legacy Protection: A well-structured succession plan safeguards business interests and ensures a smooth transition of ownership and management. Without one, uncertainties and disputes which often lead to protracted legal battles can threaten the business's survival. Proper planning prevents disruptions, allowing operations to continue seamlessly in the entrepreneur's incapacitation, absence or demise.
Succession Planning: The assumption by entrepreneurs that family members, heirs or business partners will naturally take over the smooth and effective operation of their businesses after their demise can lead to instability. Without clear succession arrangements, conflicts over leadership, ownership rights, assets and financial control are inevitable. Succession planning allows the entrepreneur to assign roles and responsibilities, preserving peace and ensuring business stability. It also provides entrepreneurs with the opportunity to structure succession in a manner they think best preserves their legacy.
Protects Business Assets: Succession planning ensures wealth and resources are preserved and transferred efficiently according to the entrepreneur's wishes.
Ensures Strategic Growth: Overall, succession planning enables entrepreneurs to establish long-term strategies for growth and sustainability, ensuring the business thrives beyond their lifetime.
Effective Succession Planning for Businesses
Succession planning for businesses is not a one-size-fits-all approach. A structured plan must take into consideration the nature of the entrepreneur's business to guaranty effectiveness. In other words, an estate plan designed for a sole proprietor might not adequately work for partnerships or corporations.
Effective estate planning will involve the following:
Securing the Services of a Professional: Following a decision to plan a business estate, entrepreneurs should seek the expertise of a lawyer experienced in estate administration. Such a lawyer can provide legal guidance to develop a functional estate plan that aligns with the entrepreneur's intentions while addressing legal and tax requirements. The lawyer shall equally be responsible for drafting and perfecting any necessary legal instrument and collaborate with other professionals that may be involved in succession planning such as valuers and financial advisors to ensure a comprehensive and well-structured estate plan.
Choosing and Preparing the Right Instrument of Estate Planning: Having engaged the services of a lawyer, your lawyer will then advise on the appropriate instrument of succession management to be selected. These may include a combination of or any of the following:
Wills: A will is the primary instrument of succession planning, outlining how personal assets, liabilities and interests should be distributed upon demise of an entrepreneur. It is most ideal for handing over assets and control of businesses, especially for sole proprietorship which is prone to ending upon demise of the sole proprietor. Entrepreneurs may equally use this instrument to bequest interests (e.g. shares) in corporations, or partnerships to their heirs/beneficiaries ensuring that their legacies remain in preferred and trusted hands.
Trusts: a trusteeship can be created. It provides entrepreneurs with enhanced control over the management and transfer of their assets, allowing for greater flexibility in structuring their estate. Trusts can be particularly useful for minimising probate delays that come with using a will and may also reduce tax liabilities. A well-structured trust allows an entrepreneur to dictate the terms of distribution, ensuring that beneficiaries receive assets in a controlled and strategic manner.
Power of Attorney: This is an indispensable instrument in succession planning. This document appoints someone to make financial or business decisions on behalf of the entrepreneur in situations where an entrepreneur cannot do so themselves as a matter of needing expert handling, or the entrepreneur being absent or incapacitated. Entrepreneurs may delegate to a designated person to sign contracts, access bank accounts, pay salaries, and make critical operational decisions ensuring business continuity.
Business Governance Agreements (Shareholders' Agreements, Joint Venture Agreements, and Partnership Agreements): Beyond regulating how a business operates, Business Governance Agreements can be enforceable instruments of succession planning. In other words, these agreements can be drafted to account for what happens in the event of a partner entrepreneur's death, incapacitation, or exit from the business from the business. Particularly, key clauses addressing; decision-making protocols in the incapacitation of a partner, succession and inheritance of a partner's interests, and right to purchase the interests of a departing partner can be inserted in such agreements.
Regular Review of Succession Plan: Business realities evolve as laws are updated, and as such, regular review of the succession plan is necessary as it allows entrepreneurs to make adjustments following changes to business or changes to his/her intended plans for continuity or succession of the business. This may result in a review of relevant instruments as well.
Conclusion
The life of an entrepreneur is one filled with uncertainties. Having a proper succession plan affords an entrepreneur something to be almost certain about. It is important for entrepreneurs to take this crucial step in safeguarding the assets and legacies they have toiled so hard to create.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
