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Whether you have a family business or own a business with others, it is important to consider what happens on your death or incapacity:
- For individuals owning a business with other individuals, a buy-sell agreement (usually coupled with appropriate insurance) is recommended. The buy-sell agreement allows owners to set out how their interests will be dealt with, which avoids involving the deceased or incapacitated owner’s spouse or relative in the business. Instead, that owner’s interest is paid out to their estate, usually with insurance proceeds. Ideally, the agreement is used in conjunction with a shareholders’ agreement (or partnership agreement).
- For businesses owned and operated by a company, a shareholder agreement (and a buy-sell agreement) is recommended. The shareholder agreement permits the shareholders to agree on key arrangements between themselves such as the right to appoint directors, changes to share class rights, voting rights, dispute resolution and managing exits (by individual shareholders or a sale of the business or a majority of the shares).
- For individuals with a family business who have had children enter the family business or a business they are considering selling or passing control to their children, the process should be structured with all family members understanding and in agreement (where possible). We can assist in these family discussions to agree on a strategy then prepare documentation to achieve your strategy.
- For individuals with trusts or entities holding family businesses, a bespoke family agreement may be appropriate. This provides a clear framework for the operation and future of trusts and businesses held through those trusts on the death of key family members. The agreements vary greatly but often cover matters including:
Control Who can and cannot act as a director?
What happens on death or incapacity of a director?
- setting protocols for key decisions
- acquisitions or sales over a certain dollar value
- sale of the business/key assets
- hiring key staff
- minimum distribution levels
- how distributions are to be made
- when distributions can be postponed
Transferring of shares Who can receive a transfer of shares? What happens upon the death of descendants? Can a child or partner of the deceased become involved in the business? Exit strategies What happens if a family member wants to sell ‘their share’ in the business?