The Role of an Emergency Plan and a Shareholder Agreement in a Family Business Transition

We recently hosted a seminar on the planning The Role of an Emergency Plan and a Shareholder Agreement in a Family Business Transitionand strategies that are necessary to ensure the continuity of a family business. The presentation included a discussion about the various elements of a family business succession plan. In my last blog post, I addressed two of those elements – retirement and estate planning. Today, I want to focus on two others: an emergency plan and a shareholder agreement.

In its simplest form, an emergency plan is a set of instructions for family members and key members of the management team to follow in the event of an unforeseen circumstance involving the company’s leader. For the family members, it should detail the business’s key advisors and with whom the family should interact at the company. For key members of management, the plan should provide guidance on who will assume which responsibilities – either on a temporary or a permanent basis – until a new CEO is appointed or hired. These instructions are meant to provide guidance; without them, family members who have not been involved in the day-to-day operations of the business may not know what to do and the company’s employees may begin to leave if there is too much uncertainty.

A shareholder agreement, on the other hand, dictates how the interests of an owner should be handled in the event of key triggering events. These events include death, disability, termination, retirement, and certain personal matters such as bankruptcy or divorce. The agreement should lay out the terms and conditions for how and when an exiting shareholder will be compensated for their investment in the business. It is particularly important for a family transition plan in which ownership transfers from the parents to their children, as it helps set the tone for future generations.

Creating an emergency plan and a shareholder agreement may not seem fun or exciting, but taking the time to make sure they’re completed can alleviate a level of stress for family members and other key people essential to the survival of the business.


Steven E. Staugaitis is a director at Kreischer Miller Steven E. Staugaitis, Kreischer Millerand a specialist for the Center for Private Company Excellence. Contact him at Email.


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