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Manufacturing is a highly significant sector within the Northern Ireland economy. Invest Northern Ireland has reported that the Manufacturing sector is responsible for over 11% of employment and 15% of GVA (Gross Value Added) in the region. A large number of NI manufacturing businesses are owner-managed or family-run. At some point, all family businesses will need to think about making plans for formally passing the business on to the next generation (succession planning), or transferring the business to a key employee or third party. This can seem like an overwhelming and complicated process to those who are new to succession planning, but once broken down, it can be much more straightforward. We’ve outlined a simple 10-step plan to help you prepare an effective succession plan for your manufacturing business.
Keeping the management team and, where relevant, family up-to-date with decision making and future plans is vital to ensuring successful succession. Good corporate governance is also important for ensuring that formal business decisions are taken appropriately and recorded accurately.
Draft a business plan which should be kept under review and updated regularly, ensuring that all key persons in management positions are aware of the contents and contribute to such a plan.
Ensuring all persons in key roles have suitable and robust employment agreements in place. Such agreements should clearly set out roles and responsibilities, include appropriate restrictive covenants as well as confidentiality and intellectual property provisions.
Where there is more than one shareholder, draft a shareholders’ agreement as early as possible. Such an agreement can provide mechanisms via which owners can exit the business.
It is important to take professional advice in relation to the tax consequences of your will, particularly in light of the availability of Business Property Relief from Inheritance Tax in certain situations, as effective tax planning in your will can lead to significant tax savings upon your death.
Incentivise key employees to stay and grow within the business. Such incentives can take the form of competitive salary and benefits packages, performance related bonuses or the use of share option schemes.
Good tax planning can ensure that an owner is able to maximise the value they are able to extract from the business on exit.
Key man or Cross-Option Insurance can pay out to the company or to family members in the event of critical illness or death and can provide certainty to business owners and managers at the most uncertain of times.
It is advisable to consider putting in place an Enduring Power of Attorney sooner rather than later, in case it is ever needed. Should an owner or director lose mental capacity without having an Enduring Power of Attorney in place, an application would need to be made to the Office of Care & Protection in the High Court to appoint a Controller to deal with their property and financial matters. This is often a lengthy and costly process, during which time it may not be possible to do anything with the existing assets.
Having a carefully drafted, tax-efficient will is vital in safeguarding your business and ensuring that your business interests pass to the individuals you choose. Wills should be reviewed regularly and in conjunction with the terms of any partnership agreement, articles of association or shareholders’ agreement to ensure that your business interests can pass by your will.
We know that succession planning can often be a stressful and sensitive process; instructing an experienced solicitor with specialist expertise in this area to guide you through the creation of your succession plan will help to make the transition as seamless as possible. If you would like further advice and assistance on succession planning, please feel free to contact Brid McColgan.
Find out more about Cleaver Fulton Rankin’s Manufacturing legal services here.
This article has been produced for general information purposes and further advice should be sought from a professional advisor.