Business Succession: See What It Is and How to Carry Out This Process!

The corporate world is challenging due to constant technical, legislative and technological changes. These changes require entrepreneurs to reinvent themselves and seek alternatives to remain competitive. Therefore, knowing what business succession is can help you achieve better results and continue growing. Although this practice is common and brings benefits to the businesses that use it, it is essential that business owners understand its particularities if they need to implement it. After all, when the succession process is carried out, it impacts all employees.

In this article, we will discuss the requirements needed to carry out an efficient business succession, the types that exist and how to develop a plan to put this complex procedure into action.

Continue reading to find out what business succession is and all the specifics of this topic.

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What is business succession? Understand!

Business succession is when the ownership of an establishment, power or capital is transferred to a legal entity or group of people, who will continue to carry out the economic activities of the previous enterprise, even if the corporate name changes.

In the process, the economic, administrative and control functions and responsibilities of the organization are also transferred to the buyer. That is, pending contracts, debts and old credits are absorbed by the successor. According to the Civil Code , the liabilities of the predecessor can be collected from both parties by the transferor.

In addition, the employees of the predecessor company become part of the new corporate group. In addition, previous labor debts, if any, must also be assumed by the successor.

Here, you might be thinking that the succession of a family business is not favorable for those who acquire the business, since there are many responsibilities to take on. However, it is worth mentioning that the commercial location and the client portfolio of the selling corporation are also inherited by the new management, which is a great advantage for generating good negotiations.

Now that you understand what business succession is, the next step is to learn about the requirements of this process. See below!

What are the requirements for business succession?

Companies that want to remain active in the market in the long term and in a structured manner need to understand the requirements of business succession. After all, this process may be the most appropriate solution for reinventing the business in the future, should it need to undergo restructuring.

There are some situations that lead organizations to practice family business succession, such as: transformation, merger or incorporation of the company; changes in the corporate structure; sale of the business; family inheritance (due to retirement or death of a partner) and change from individual company to partnership.

However, for this process to occur, two requirements for business succession must be met. See below!

• The transfer of ownership of the predecessor establishment as an economic unit to the successor is mandatory.
• It is prohibited for employers to interrupt the provision of services.

Types of business succession

Knowing what business succession is and the essential requirements to put it into practice, it is time to learn about the types of processes that can happen to organizations.

Learn about the different types of business succession that exist to help you plan your company’s succession, if you need to go through this process.

Family succession

Family succession occurs when the owner of the business, who may be the father and/or mother, dies and transfers ownership of the organization to the family’s natural successors or to another relative.

The heir will receive all the company’s assets , that is, the company’s leadership; everything involving finances , such as profits , debts and contracts, in addition to the responsibilities of the company’s management and administration.

Labor succession

This type of business succession occurs when an individual or legal entity assumes the labor obligations of the previous manager. In this case, the new manager acquires all of the organization’s current assets.

It is important to highlight that, in labor succession, the staff does not undergo changes and legal rights are also maintained.

Acquisition of goodwill

The acquisition of goodwill occurs when a company purchases a commercial property. In this situation, the buyer acquires everything that belonged to the predecessor: physical structure, debts, assets, profits, processes and contracts with other organizations, partners, suppliers and employees.

In this type of business succession, the main activity is transferred to the successor, keeping the new organization within the same business.

Business succession plan: learn how to do it!

As we mentioned throughout the text, business succession is a process that requires legal knowledge, attention and guidance from the parties involved to be done correctly and not cause legal losses.

Therefore, having a family business succession plan is vital to carry out this procedure efficiently, according to the reality of the business.

Check out the three steps!

1- Carry out advance planning

The success of business succession is directly linked to this stage.

Carrying out planning will help those involved to define the appropriate measures so that the succession is carried out well.

Here are some items that should be taken into account in your business succession plan:

• definition of the ideal successor for the corporation;
• detailing the main succession issues: new managers, reason for the process taking place, what changes and what does not change in the company, etc.;
• hiring a labor lawyer to formalize the previous items;
• preparing employees for the changes that will occur in the organization.

2- Train successors

Investing in the qualification and evaluation of potential successors is essential to perform their functions properly and bring good financial results to the company.

By the way, with a business succession plan and strategic training, it becomes easier to guide new professionals in accordance with corporate standards.

3- Hiring specialized professionals

Hiring professionals specialized in business succession makes the entire process more agile and assertive, avoiding mistakes that could harm the business.

Furthermore, these experts act with an impartial opinion, making their decisions based on business and market data.

What to do after understanding what business succession is?

Corporate challenges lead entrepreneurs to constantly reinvent themselves, whether seeking better types of financial investments or different business strategies. Therefore, business succession is often the ideal solution for an organization to overcome market obstacles and remain competitive.

However, it is necessary to understand what business succession is, how this complex process works and its particularities so that your business does not suffer major impacts from the changes that will come due to the transformations of succession.