1. Have the general conditions been defined?
Ideally, the business owner should arrange for succession well in advance during his or her lifetime, whether through a transfer to the next generation or to a third party, or through a will. At best, this goes hand in hand with an organizational structure tailored to this purpose, particularly the establishment of a second level of management or the grooming of a successor. In addition, the legal and tax framework must be established to contribute to the success of the succession or to make it possible in the first place.
Among other things, the provisions in the will and the articles of association must be carefully coordinated so that the intended succession actually takes place and the designated successor is not, for example, forced to leave the company due to provisions in the articles of association regarding ownership interests.
For the remaining business transfers planned to be conducted externally, there is an alarmingly small pool of potential buyers to choose from. This number has now dropped to fewer than 60,000. To counteract this imbalance, a methodical approach by HR consulting firms is needed to identify, train, and recruit a suitable successor. Succession consultants must rise to this challenge and also support the suitable new entrepreneur throughout the succession process.
2. Who will take over the reins?
Both the sudden death of the business owner and, for example, temporary incapacity resulting from an accident or serious illness—always constitute emergencies in practice that pose major challenges for the affected companies, even when the framework for a future succession has been carefully prepared. This applies equally to the entrepreneur’s family, which must face the often unforeseen task of taking over the management of the company—at least temporarily—or of temporarily organizing and overseeing it.
Often, the necessary practical arrangements have not been made, which leads to avoidable difficulties when the worst happens. Appropriate planning and preparation in the form of an “emergency plan” should therefore ensure for both the company and the entrepreneur’s family that, even in the event of the entrepreneur’s sudden death or (temporary) incapacity of the business owner, the business can continue to operate swiftly and without excessive disruption, thereby securing its continued existence and success in the market.
2.1 Authority to Act and Power of Attorney
The entrepreneur is typically significantly involved in the management of the company. To ensure the smooth continuation of management even in the event of the entrepreneur’s sudden absence, it should always be specified who is to be notified of the incapacity that has occurred. Furthermore—unless a strong second level of management is already in place—at least one representative who is familiar with the company’s operations and enjoys the entrepreneur’s full trust (and is granted the appropriate power of attorney or corporate authority) should be designated to temporarily take over management.
With regard to the entrepreneur’s shareholder rights as well, care must be taken to ensure that the entrepreneur is represented in a trustworthy manner in the event of temporary incapacity or sudden death. Particularly in the case of companies with multiple shareholders, it must be verified on a case-by-case basis that the representation arrangement is permissible under the articles of association.
It may also be advisable to grant a trusted individual additional power of attorney, possibly even in the form of a comprehensive general power of attorney. In any case, entrusting a representative with the aforementioned tasks should always be carefully coordinated with the representative in advance.
This authorization is particularly important given that clarifying the status of heirs or, in the event the business owner is unable to act, the potential need for a court-appointed guardian can take valuable time; authorizing a representative ensures the ability to act promptly. With regard to bank accounts, it should be clarified with the respective bank whether—as is often the case—it requires the power of attorney to be completed on its own form.
The powers of attorney should also be granted to remain in effect beyond the entrepreneur’s death in order to ensure the ability to act at all times, particularly in the event of the entrepreneur’s sudden death, and, in particular, to avoid delays associated with determining the heirs or issuing a certificate of inheritance.
2.2. Data and Documents
To enable the representative to continue the company’s day-to-day operations smoothly, the representative must have access to power of attorney for banking and other matters, access credentials (e.g., passwords, PINs/TANs for banks), and other data and documents necessary for managing the company. These include, for example:
• a list of the most important contacts (i) within the company, (ii) among the company’s customers and suppliers, and (iii) other business partners (e.g., insurance companies, banks)
• an organizational chart of the company
• the articles of association in their current version, as well as any existing bylaws
• contact information for (other) shareholders of the company
• A list of the company’s external advisors and their contact information, such as tax advisors, notaries, and attorneys
• A compilation of important contracts (copies if applicable), e.g., insurance policies, lease agreements, financing agreements, and bank account information
At the same time, it is important to consider to what extent such information should also be made available to the spouse or other family members, at least to allow for the necessary insight into and oversight of the aforementioned matters.
3. Have you prepared the appropriate “emergency file”?
To ensure that the emergency plan can be implemented when the time comes, it must be fully documented and kept readily available in an appropriate manner. For example, a power of attorney stored in a bank safe deposit box is largely useless if it is already required to gain access to that safe deposit box. However, the various parts of the emergency plan do not necessarily have to be kept in one place, even though this generally promotes clarity and is particularly useful when a single “emergency file” is intended for one person or the family.
For example, it may be preferable not to store documents pertaining to private matters at the workplace. However, it should be ensured that the individuals for whom the respective documents are intended have the necessary access to them and also know where the relevant information is kept.
4. Have guidelines for future leadership been formulated?
In cases where the entrepreneur’s children—who are intended to eventually take over the business—are still very young, or where the family has had little involvement in the company’s management to date, the emergency plan can also include guidelines for how the company should be managed in the future. This can also be helpful for the entrepreneur’s family members, who can align their future decisions with the entrepreneur’s wishes. In this regard, it may also be advisable to distinguish between a situation where the entrepreneur is expected to be temporarily incapacitated and one involving the entrepreneur’s permanent incapacity or death.
Conclusion
An emergency plan naturally complements the organizational, corporate, and testamentary (e.g., will-based) succession arrangements in the event of the entrepreneur’s sudden absence. Like these arrangements, it must be tailored to the specific needs of the company in order to fulfill its purpose as effectively as possible. However, since the requirements and circumstances in this regard may change over the years, the emergency plan should be reviewed regularly to determine whether it needs to be updated.
