Succession Planning Using A Change Of Structure

The Challenge

A hugely successful niche law firm operated by sole practitioner and delivering profits in excess of £1 million per year was concerned that as he aged the decision to not have partners was a risk.

The sole practitioner wanted to limit the risks stemming from his trading status and the absence of other partners. He also wanted to be able to offer minority interests to two key members of staff who whilst key to the success had to date showed no interest in acquiring an interest at an attractive price.

What we did

Formed a Limited Company and had this approved by the Solicitors Regulation Authority (SRA). Created two share classes to enable the key staff to receive dividends and develop an owners mentality (whilst relinquishing control).

We drafted a dividend policy to reassure the former sole practitioner and used a Shareholders Agreement to manage risks and create stability.

The work empowered the two minority shareholders to look to develop their own plan to succeed to full ownership over a period of time (including a plan to develop their skills).

The Outcome

The firm now has 3 managers approved by the SRA and is able to continue to trade in the event of illness or the death of the former sole practitioner. This gives security to the employees and the former sole practitioner. A sum of money is set aside for run off cover if the minority shareholders do not wish to carry on in the event of ill health or death.

The minority shares are negligible in value and carry no voting rights but they permit tax efficient payments to two key staff that are now formally SRA managers and have an interest in acquiring more. The long term risks are managed.