• 28-10-2026 09:27
• Velizar Petrov

Business Succession Is Not Merely a Legal Matter

 

(Velizar Petrov, PhD)

 

What passes between generations is more than ownership: it is capital, authority, knowledge and trust.

 

Imagine a founder transfers the shares in her company to her daughter. The paperwork is impeccable. Yet the bank still waits for the founder’s approval. Employees continue to seek her view. Customers treat the daughter as an interim appointment.

 

Legally, ownership may have changed hands. In practice, the business has not yet been handed over.

 

This is why succession cannot be reduced to a will, a share transfer or a carefully drafted agreement. In a family-owned business, at least three transitions take place: ownership changes, leadership moves, and the people around the business decide whether to trust the next generation.

 

The European Commission recognises the wider economic value of business transfers: they help preserve economic activity and jobs. It also identifies inadequate preparation and tax-related issues as barriers to successful transfers. The legal framework matters enormously. But it operates within a broader financial, managerial and human reality.

 

Ownership and leadership are different things

 

One person may own the shares without running the company. Another may lead the business without owning it. A prospective successor may be expected to do both, despite having little experience of making strategic decisions.

 

These are separate choices. A family may retain ownership while appointing a professional executive. It may divide shares among several siblings while entrusting day-to-day leadership to one qualified successor or a management team. Research on successor leadership groups in family firms highlights the importance of clear governance and trust, particularly when more than one family member is involved in the transition.

 

Legal documents can define voting rights, decision-making powers and procedures for resolving disagreements. They cannot, by themselves, create competence, credibility or authority. Those have to be earned through responsibility, evidence of performance and a genuine transfer of decision-making power.

 

The financial design of succession

 

A central question is often framed as: “Who should inherit the business?” The more useful question is: “What exactly is being transferred, at what value, and how will the transition be funded?”

 

Valuing a small or medium-sized enterprise is not merely an accounting exercise. It may be needed when ownership changes, a shareholder exits, capital is restructured or heirs disagree about the value of their interests. A sound valuation has to consider more than the assets on the balance sheet. Future earnings, the company’s dependence on its owner and the reliability of the available information all matter.

 

Then comes the question of liquidity: where will the cash come from? If one sibling will run the company while others will not, equal shareholdings may not automatically produce a sense of fairness. The active successor may be unable to buy out the others. If the company funds that buy-out through excessive borrowing or distributions, it may be left with less money for working capital, wages and investment.

 

A financial plan therefore needs to consider several interests at once: the value of the business, the retiring owner’s personal financial needs, the treatment of family members who are not involved in the company, and the firm’s capacity to keep investing after the transfer. Depending on the circumstances, a transition might be phased, funded externally or settled over time. There is no universal structure. The European Commission’s 2026 recommendation also stresses access to financing and training for prospective successors.

 

This is where equality and fairness can diverge. Giving every child the same stake may look equal, but it may not reflect who works in the business, who carries operational responsibility or who depends on the company for income. Conversely, concentrating control in the hands of the working successor may feel unfair to other family members if the criteria and financial settlement have not been explained openly. The question is not only what the documents permit; it is whether the arrangement is understood, sustainable and credible to the people affected by it.

 

The next generation must be able to lead

 

Naming a successor is not the same as preparing one. A future owner may have known the business since childhood, yet never have led a team, negotiated a major contract or been accountable for a budget. Family connection offers access to the company’s history; it does not replace management experience.

 

A credible transition sets out the capabilities the future leader will need, then gives them progressively greater responsibility and real authority. Experience outside the family firm, time spent in different functions and objective performance reviews can help a successor build both competence and standing. Deloitte’s 2026 family-business report identifies a lack of experience among next-generation leaders and difficulty finding a suitable successor among the challenges reported by businesses. It also describes formal roles, mentoring and external work experience as tools used to develop future leaders.

 

The incumbent’s next chapter needs equal attention. If the founder remains the informal arbiter of every important decision, the new leader carries responsibility without having the authority to act. Employees are left uncertain about whom to follow, while the successor struggles to establish credibility.

 

The family should agree in advance whether the outgoing leader will serve on a board, act as an adviser or step away from day-to-day decisions altogether. Clear boundaries are not a sign of disrespect. They are what allow the next leader to become a leader in practice, not merely in title.

 

Nor does good succession require every role to remain within the family. If no family member has the necessary skills or appetite for executive responsibility, an external professional can lead the company while the family remains its owner. The measure of success is not whether the leader shares the family name. It is whether the business is competently led and able to endure.

 

Succession is also an identity transition

 

For a founder, the business may be far more than an asset. It can be a source of purpose, identity and recognition. For a successor, it may be both an opportunity and an expectation they did not choose. Transferring the title does not settle who has the right to shape the company’s future.

 

The behaviour of both incumbent leaders and successors is influenced by how they understand their roles. Succession is not simply a one-way handover: the two generations adjust their expectations and develop new leadership identities through their interaction.

 

That finding helps explain why “I am ready to hand over the business” can mean different things to the founder and the successor. The founder may mean transferring the shares. The successor may mean having the freedom to change the strategy.

 

The successor must earn the confidence of employees, customers and business partners without being expected to copy the previous generation. They need to understand what earned the company its reputation, while being given room to decide what should change. That balance is easier to strike when the family distinguishes enduring values from practices that have simply become familiar.

 

Knowledge, too, must be transferred. Some of it is written down in systems and procedures. Much of it is not: why a particular customer needs a different approach, how to recognise trouble with a supplier, or which compromises the company will never make. If this knowledge remains solely with the founder, the business is exposed even after a legally flawless transfer.

 

Innovation is part of the same challenge. Uncertainty during succession can hold back investment in new ideas. This does not mean the next generation should change everything for the sake of change. It means the transition needs enough stability to protect the business, and enough openness to let it evolve.

 

Four plans. One transition.

 

A robust succession brings four plans into alignment. The legal plan clarifies ownership rights and decision-making. The financial plan addresses valuation, funding and the company’s capacity to keep trading and investing. The management plan develops the successor and allocates responsibility. The family plan makes space for expectations, fairness and the freedom to change.

 

Together, they should answer five questions:

 

·       Who will own the business, and with what rights?

·       Who will lead it, and on what evidence of readiness?

·       How will the transfer be funded without weakening the company?

·       How will family members who do not work in the business be treated?

·       What knowledge, relationships and values must endure—and what should change?

 

If these questions are left until the founder is ready to retire, or a crisis makes an immediate handover unavoidable, the family has fewer options and less time to use them well. The European Commission’s 2026 recommendation emphasises earlier preparation, suitable legal and tax frameworks, financing and training. The same principle applies inside an individual company: succession is not the administrative closing of one generation’s chapter. It is a strategic process that should begin well before the final signature.

 

A business has not truly been passed on simply because the shares have changed hands. The next generation must be able to make decisions. The company must remain financially resilient. The outgoing leader must have a clearly defined place. And the family must be able to discuss differences without putting the enterprise at risk.

 

Law provides the framework. Finance makes the transition possible. Management gives it structure. Trust gives it a future.

 

In your experience, what is hardest to hand over: ownership, authority or trust?