How Do You Structure A Succession Plan?

Ensure seamless leadership transitions with a strategic succession plan. Learn key steps, legalities in Utah, and practical tips for your business success.

Anna frankl
5 min readAug 11, 2024

How Do You Structure A Succession Plan?

Creating a succession plan is not just a necessity but an obligation if you aim to ensure the long-term success and continuity of your business. It’s a structured process that identifies and prepares future leaders. This article will walk you through everything you need to know about structuring a succession plan, particularly focusing on the legalities revolving around corporations and limited liability companies (LLCs) in Utah. Let’s get started!

Understanding Succession Planning

What is a Succession Plan?

A succession plan is a strategic framework designed to ensure seamless continuity in leadership roles within an organization. The plan typically details how roles will be filled temporarily or permanently when key individuals leave or retire.

The Importance of Succession Planning

Failing to have a solid succession plan can lead to operational disruptions, decreased employee morale, and financial instability. Imagine the key decision-maker of your company suddenly leaves without a successor in place. This scenario could thrust your business into turmoil.

Common Misconceptions

One prevalent misconception is that succession planning is only for large corporations. In reality, every business, big or small, can benefit from it. Another misconception is that it’s a one-time event rather than an ongoing process. Succession planning should be continually revisited and updated as circumstances and business needs evolve.

The Legal Framework in Utah

Utah Code for Corporations

In Utah, succession planning for corporations is governed by the Utah Revised Business Corporation Act (URBCA). According to URBCA Section 16–10a-801, every corporation must have a board of directors to oversee and guide the business. This board is crucial to an effective succession plan because it ensures that leadership transitions are smooth.

Utah Code for Limited Liability Companies (LLCs)

For LLCs, the rules are outlined in the Utah Revised Uniform Limited Liability Company Act (URLLCA). As per Section 48–3a-407, every LLC is required to have one or more managers to run the business effectively.

Real Laws to Note

  1. URBCA Section 16–10a-801: Requires corporations to have a board of directors.
  2. URLLCA Section 48–3a-407: Requires LLCs to have one or more managers.

Real-world Examples

Consider a tech startup in Salt Lake City. The CEO suddenly decides to retire. If there are no legal or operational plans for this shift, it could lead to a chaotic transition that might involve legal disputes, operational failures, and even financial decline.

How Do You Structure A Succession Plan?

Steps to Structure a Succession Plan

Identify Key Positions

Identify roles critical to the business’s success. Typically, these are executive-level positions like the CEO, CFO, and certain department heads.

Define Competencies

What skills, experiences, and attributes must successors possess? This will help tailor development plans and ensure the right individuals are prepared to step up when needed.

Develop Talent Pipeline

Nurture potential successors from within your organization. Provide mentoring, coaching, and necessary training. This helps ensure they’re ready to take on key roles when the time comes.

Documentation

Always document your succession plan. This serves as a formal guideline that can be referred to in times of need. Clearly define the process for transferring duties and responsibilities.

Regular Review and Update

A succession plan isn’t a set-it-and-forget-it kind of document. Regularly review and update it to accommodate changes in business structure, market conditions, and internal talent pool.

Common Pitfalls and How to Avoid Them

Lack of Clarity

Unclear succession plans can lead to confusion and legal challenges. Ensure that your plan is documented clearly, outlining every step and role.

Ignoring Legal Aspects

Failing to consider legal aspects can result in disputes and complications. Always consult legal professionals to draft or review your succession plan.

Not Considering External Candidates

Sometimes, the best candidate isn’t within your organization. Consider external candidates as part of your succession strategy.

Overlooking Training and Development

Not investing in nurturing future leaders can lead to a talent gap. Regular training and development programs are crucial for a successful transition.

How Do You Structure A Succession Plan?

Practical Applications

Examples from Utah

  1. Restaurant in Salt Lake County: In a well-known restaurant in Salt Lake County, the owner groomed a long-time manager to take over the business gradually. The owner also consulted local business laws, ensuring a seamless transition with no legal hiccups.
  2. Tech Firm in Provo: A tech firm in Provo implemented a comprehensive succession plan that included both internal training and external hiring when necessary. This strategy helped them maintain operational stability and rapid growth even during leadership changes.

Hiring a Legal Expert

Engage an attorney specializing in business succession law. Attorney Jeremy Eveland, for instance, has extensive experience helping businesses navigate these crucial transitions.

Why It Matters

Understanding succession planning laws is crucial because it helps protect your rights, resolves potential disputes, and regulates activities. A robust succession plan mitigates risks associated with sudden leadership changes and ensures the continued success of your business.

The Role of Legal Advice

Navigating the legal complexities of succession planning can be overwhelming. Legal advice can help you draft a plan that complies with Utah regulations and meets your business needs.

FAQs

Q: Do I need a lawyer to create a succession plan?

Yes, involving a lawyer is highly recommended. They can ensure that your plan is legally sound and complies with applicable laws.

Q: What happens if a succession plan is not in place?

Without a succession plan, your business could face disruptions, lose key talent, and struggle to maintain operational stability.

Q: How often should I review my succession plan?

At least annually or whenever there is a significant change in your business structure or market conditions.

Conclusion

Structuring a succession plan involves detailed planning, understanding of legal obligations, and regular updates. A well-thought-out succession plan can fortify your business against uncertainties and ensure its long-term success. For businesses in Utah, knowing specific laws such as those in the Utah Revised Business Corporation Act and the Utah Revised Uniform Limited Liability Company Act is essential.

Always seek professional advice to create a robust succession plan. If you need legal help, look no further than attorney Jeremy Eveland, who specializes in business succession law.

To speak with a lawyer, call attorney Jeremy Eveland.

Jeremy Eveland
8833 S Redwood Rd
West Jordan Utah 84088
(801) 613–1472

The information contained in this article is for information purposes only and is not legal advice. For legal advice, hire a competent lawyer in your jurisdiction.

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