THREE main types of business transfer are possible: (1) a transfer to family members; (2) a transfer to employees (employee buy-out); or (3) a transfer to a third party. The process varies depending on which type of transfer is undertaken. In particular, there is a difference in the order and the importance of the FIVE stages in the transfer process: (1) the establishment of the ground rules and the completion of the planning; (2) the nurturing and the development of successors (or buyers); (3) the selection of the successor (or buyer); (4) the management transfer (Hand-off/Transition process or installation); and (5) the ownership transfer (Transfer of capital).
Internal transfer of ownership or management
There are two types of internal transfer.
The transfer within the family is one in which the property and the management of the business are transferred to one or more members of the incumbent’s family.
The transfer to employees is a transfer in which employees take over the ownership of the business (management buy-out – MBO, employee buy-out – EBO or collective employee buy-out), or one in which the management of the business is transferred to an internally promoted employee without there being any transfer of capitals.
Transfers within the family and employee buy-out are influenced by similar contexts and follow essentially the same stages in the transfer process. The figure below presents the main stages in these two types of transfer.
Note that the stages “Ground rules and planning” and “Nurturing and development of successors (or buyers)” are particularly important for these two types of transfer. These stages are indispensable to the development of potential successors (or buyers) competencies that are compatible with the business to be transferred.
Diagram: Transfer Within the Family and Employees Buy-Out
External Transfer of ownership or management
Also called a transfer to a third party, this type of transfer is one in which the business is acquired and its management taken over by an external successor.
In some cases, either a part or all of the assets of the business are acquired by an external successor/buyer, while the management remains the responsibility of the company managing director already in place.
A transfer to a third party is a distinct process with certain specificities. The figure below presents the main stages in this type of transfer.
Note that the stage “Ground rules and planning” has aspects that distinguish it from the same stage for transfers within the family and employee buy-out. For example, due diligence is especially important for transfers to a third party. The criteria for selecting a successor are also different, and the stage “Nurturing and development of successors/buyers” as well as the “Management transfer and transition” stage are usually much shorter.
Diagram: Transfer to a Third Party
- Le Breton‐Miller, I., Miller, D. & Steier, L. P. (2004). Toward an integrative model of effective FOB succession. Entrepreneurship Theory and Practice, 28(4), 305-328.