Running a family business often means focusing on what’s right in front of you, such as customers to look after, staff issues, cash flow, and growth plans. Planning for what happens when an owner steps back can feel like an afterthought. But succession planning for family businesses isn’t only about retirement. It’s about protecting the business if something unexpected happens and giving everyone clarity about the future.
In Scotland, a solid succession plan usually brings together business documents and personal planning. It’s rarely just one decision. It’s a set of sensible steps that reduce risk and help the business stay stable during change.
Who Should Own The Business?
The first step is clarifying what “succession” means for your family. Some families want the next generation to own and run the company. Others want children to benefit financially while professional management runs the business. Sometimes, one child is involved day to day and another isn’t.
This is why succession planning for family businesses often begins with honest discussion. Who’s interested? Who’s capable? Who’d prefer not to be involved? Writing a plan is much easier once expectations are clear.
Separate Ownership From Management
In many family businesses, ownership and management are treated as the same thing. In practice, they don’t have to be. A family member can own shares but not work in the business. A non-family director can run the business without owning it. This split can reduce pressure on the next generation and help the business stay stable.
Documents can reflect this separation. For example, a shareholders’ agreement can control how decisions are made, who can become a director, and what happens if someone wants to sell their shares.
Check The Company Structure And Paperwork
A surprising number of family businesses don’t have paperwork that matches how the business actually operates. Shares may not be allocated clearly and old director appointments might not reflect reality. There may be informal arrangements that everyone understands, until something changes.
Part of sensible succession planning for family businesses is a review of the current structure. That usually includes:
- Confirming who owns the shares and in what proportions
- Checking the company’s articles of association
- Reviewing any shareholders’ agreement
- Confirming director roles and decision-making authority
- Checking what happens on death, retirement, divorce, or incapacity
If key documents are missing or outdated, this is the moment to fix them.
Use A Shareholders’ Agreement To Reduce Risk
A shareholders’ agreement is often one of the most effective tools for family businesses. It can help avoid disputes by setting rules in advance.
Common clauses cover:
- How decisions are made and who has voting control
- What happens if a shareholder wants to leave
- How shares are valued
- Restrictions on selling shares outside the family
- What happens if a shareholder dies
- How deadlocks are resolved
This is practical protection. It’s much easier to agree on rules now than during a crisis. For many families, succession planning for family businesses becomes clearer once the agreement is in place.
Put The Right Will And Estate Plan In Place
Company shares form part of the estate and are usually dealt with under the will (or intestacy rules), but the company’s articles and any shareholders’ agreement can affect how and to whom shares can transfer. If the will is outdated, missing, or unclear, the business can be thrown into uncertainty at the worst time.
In Scotland, it’s important to consider legal rights and how they may affect the moveable estate. Shares in a company are moveable property. That means a spouse, civil partner, or children may have legal rights claims that could impact what happens to those shares, even if the will says otherwise.
This doesn’t mean succession planning is impossible. It means it has to be done carefully. A solicitor can help structure wills and wider estate planning so the business is protected and the family’s treated fairly.
Consider Incapacity As Well As Death
Succession planning isn’t only about retirement or death. Incapacity can cause just as much disruption. If a key owner or director loses capacity, someone needs authority to manage their personal and financial affairs. Without a power of attorney, families may need to apply for guardianship through the court, which can take time.
For family businesses, a continuing power of attorney can be vital. It helps ensure someone trusted can deal with business-related financial matters if capacity is lost. This is often an overlooked part of succession planning for family businesses in Scotland.
Plan For Fairness, Not Just Equality
Equal isn’t always fair. If one child has worked in the business for 15 years and another has never been involved, splitting ownership equally can create frustration and practical problems. It may also lead to decisions being blocked or the business being forced to sell.
A succession plan can reflect contribution, responsibility, and future involvement. That might mean different share classes, different roles, or different benefits outside the business for those not involved. There isn’t a single right answer, but it should be considered openly.
Think About Tax And Long-Term Value
Tax planning is part of the conversation, particularly where the business is valuable. Reliefs may be available depending on the facts, but they aren’t automatic and shouldn’t be assumed. It’s better to take advice early so there’s time to plan properly.
A practical plan should also look at value. How would shares be valued if someone exits? How would the remaining family members fund a buyout? Is there insurance in place to support this? These details matter and they often sit at the heart of succession planning for family businesses.
Final Thoughts
Family businesses are built on relationships as much as finances. A good succession plan protects both. It brings clarity to ownership, reduces the risk of disputes, and gives the next generation a clearer path forward.
Succession planning is rarely a single document. It’s usually a combination of company paperwork, shareholder arrangements, wills, and powers of attorney. The earlier it’s put in place, the more options there are.
If the business is expected to outlast the current generation, succession planning for family businesses in Scotland is essential. Speak to MM Legal for guidance and support.