Are you prepared to be a member of your member’s family? – From grain to grain

That the pandemic has imposed changes in everyone’s personal lives is nothing new and we are already adapting. In the corporate environment, it wasn’t different either, but I’m not referring to the eventual drop in sales due to changes in habits. Some companies that might not be suffering from sales face another challenge, that of succession.

When we talk about succession, we immediately think of personal financial planning. In this case, an individual plans the best way to pass on his assets to his heirs. There are two big concerns. The first in relation to transmission costs, such as taxes. The second is related to avoiding fights between the heirs that usually result in the squandering of the estate.

However, the purpose here is to discuss the succession aspect in the corporate environment. The pandemic, in fact, awakened in entrepreneurs the sense of urgency in planning business succession.

Like me, you’re probably wondering: but how has the pandemic altered the view of urgency in corporate succession planning? After all, there were business succession events in the past.

This question was answered by Daian Moura, Head of Insurance at XP Inc, visiting our office this past Thursday.

According to Daian, the pandemic awoke in the business community the notion of the fragility of governance in the corporate structure and how it can have an impact on business continuity.

Previously, it was thought that if one of the partners in a company became ill, there would be time to structure the succession. In other words, there was time to hand over control of the financial accounts, negotiate the division of control with the family and discuss the new structure with customers and suppliers.

Moura explained that the pandemic showed that businessmen who did not have all this already planned, suffered, in addition to the loss of a close friend, the bureaucracy of the inventory process and discussions with family members of the former partner.

The same fight between heirs, which can ruin the financial assets left behind by a person, can also damage the company’s future. According to him, some companies did not resist because they simply could not access the company’s cash to maintain business continuity.

How can corporate succession insurance save your company’s business continuity?

When one of the partners dies, the others should be prepared to buy its share immediately, thus avoiding the hardships of the probate process. For this, the partners should always keep the value for the acquisition of the shares of the other partners in immediate liquidity and this change of control must be provided for in the company’s shareholders’ agreement.

However, as the XP executive, Maurício Honorato, questioned, which entrepreneur has enough liquidity in investments to buy the share of the other partners?

To avoid sudden change-of-control problems like these, Moura suggests that every company that is concerned with its governance should have corporate succession insurance and have a shareholders’ agreement that establishes this insurance as a control-change tool. I remember that governance forms one of the letters of the acronym ESG that is so often spoken today.

I recently explained that life insurance is one of the most effective tools for succession planning for individuals.

I often say that individuals should plan their finances as companies do theirs. Now I can say that entrepreneurs also have to learn from individuals with regard to financial planning, at least when it comes to succession.

Michael Viriato is an investment advisor and founding partner of Investor’s House